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Public Disclosure Authorized

Report No. 40190-PE

Report No. 40190-PE


Republic of Peru
Environmental Sustainability: A Key to
Poverty Reduction in Peru
Country Environmental Analysis

Public Disclosure Authorized


June 2007

Environmentally and Socially Sustainable Development Department


Latin America and the Caribbean Region

Republic of Peru

Public Disclosure Authorized


Environmental Sustainability: A Key to Poverty Reduction in Peru

Public Disclosure Authorized


Document of the World Bank
ACKNOWLEDGEMENTS
This report was prepared by a team led by Ernest0 Shnchez-Triana (LCSEN). T h e core team
included Yewande Awe, Renan Poveda, Carolina Urmtia Vhsquez, Maribel Cherres, and Angie
Alva (LCSEN); William Reuben (LCSEO); Marcel0 Bortman (LCSHH); Marea Hatziolos and
Poonam Pillai (EN); Ani1 Markandya (ECSSD); and David Lee (Cornel1 University), Bjorn
Larsen, Santiago Enriquez, Elena Strukova, and Michelle Falck (Consultants).

The extended team included Abel Mejia (LCSEN); Vicente Fretes (LCC6); Maria Donoso Clark
(LCSES); Douglas C. Olson (LCER); Juan David Quintero (LCSEN); Veronica Andino
(LCSEO); Alberto Ninio and Charles Di Leva (LEGEN); Andrea Semaan (ENV); Lenkiza
Angulo, Juan Guerrero Barrantes, Peter Davis, Jorge Elgegren, Nelson Schack, Juan Carlos
Sueiro, Jorge Price, and Jorge Villena (Consultants); Manuel Pulgar-Vidal and Isabel Calle
(Sociedad Peruana de Derecho Ambiental); and Manuel Glave and Rosa Morales (GRADE
Consultants). The peer reviewers for the study include Maria Angelica Sotomayor (LCSFP), Dan
Biller (EASES), Raul Tolmos (United Nations Development Program), Javier Cuervo and Sergio
Ardila (Inter-American Development Bank), and Richard Morgenstern (Resources for the
Future).

The Government o f Peru, mainly through the Consejo Nacional Ambiental (CONAM), provided
key feedback during the preparation o f the study and participated actively in the production o f
diverse parts o f the report. Particularly important were the contributions o f the following
government officials: Carlos Loret de Mola, Mariano Castro, and Gabriel Quijandria (CONAM).
The team would also like to thank the following government officials for their feedback Walter
Huanami, Maria Paz Cigarhn, Julio Garcia, Maria Luisa del Rio, and Iv6n Lanegra (CONAM);
Vilma Morales (DIGESA); Alberto Bisbal (INDECI); Rosario Acero, Manuel Cabrera Sandoval,
Antonio Morisah, Mario Aguirre, and Javier Martinez (INRENA); and HCctor Talavera
(OSINERG). Important feedback was received from members o f international donor agencies and
non-governmental organizations, including Swisscontact and UNDP. The team i s particularly
grateful to the Norwegian and Finnish governments for supporting some o f the studies that
underpin this report through TFESSD funds.

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ACRONYMS

DINSECOVI Direction Nacional de Seguimiento, Control y Vigilancia


DIREPRO Direccion Regional de Produccion
DIRESA Direccion Regional de Salud Ambiental
DIRTUECO Direccion de Turismo y Ecologia
ECA Esthdar de Calidad Ambiental
ECLAC Economic Commission for Latin America and the Caribbean
EL4 Evaluacion de Impact0 Ambiental
EPS Empresa Prestadora de Servicios de Saneamiento
FA0 Food and Agriculture Organization
FEN Fenbmeno de El Niiio
FONAM Fondo Nacional del Ambiente

..
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HC Hoja de Cubicacion
HC Hydrocarbon
HCA Human capital approach
IDB Inter-American Development Bank
IIAP Instituto de Investigacion de l a Amazonia Peruana
IMAWE Instituto del M a r del Peni
INDECI Instituto Nacional de Defensa Civil
INIA Instituto Nacional de Investigacion Agraria
INRENA Instituto Nacional de Recursos Naturales
IPCC Intergovernmental Panel o n Climate Change
IPPS Industrial Pollution Projection System
IRA Infeccion Respiratoria Aguda
ITDG Intermediate Technology DeveIopment Group - Soluciones Practicas
ITTA Acuerdo Intemacional de Comercio Intemacional
ITTO Organizacion Intemacional de Maderas Tropicales
IUCN World Conservation Union
JASS Junta Administradora de Servicios de Saneamiento
JICA Japan International Cooperation Agency
JNUDW Junta Nacional de Usuarios de 10s Distritos de Riego del Peni
Ju Juntas de Usuarios
Kg Kilogram
lull2 Square kilometers
l/s per km2 Liters per second per square kilometer
LFFS Ley Forestal y de Fauna Silvestre
LGA Ley General del Ambiente
LMP Limite Maximo Permisible
LPG Liauefied uetroleum gas
m’/s Cubic meters per second
MDGs Millennium Development Goals
MDL Mecanismo de Desarrollo Limpio
MEF Ministeno de Economia y Finanzas
MEGA Marco Estructural de Gesti6n Ambiental
MEM Ministerio de Energia y Minas
MINAG Ministerio de Agricultura
MINEDU Ministerio de Educacion
MINEM Ministerio de Energia y Minas
MINSA Ministerio de Salud
mm Millimeters
MTC Ministerio de Transportes y Comunicaciones
Mvcs Ministerio de Vivienda, Construcci6n y Saneamiento

...
111
MW Megawatt
NBI Necesidad BBsica Insabsfecha
NGO N o n g o v e m e n t a l orgamzahon
NO2 Nitrogen dioxide
NOx Nitrogen oxide
O&M Operation and maintenance
03 Ozone
OAD Obstructive a m a y s disease
ODS Ozone-depleting substances
OECD Orgamsation for Economc Co-operabon and Development
OGE Oficina General de Epidemologia del Mimsteno de Salud
ONERN Oficina Nacional de Evaluacion de Recursos Naturales
ONG Orgamzacion N o Gubemamental
OPD Orgamsmo Publico Descentrallzado
OPS Organlzacion Panamencana de la Salud
ORT Oral rehydration therapy
OSINFOR Orgamsmo Supervisor de 10s Recursos Forestales Maderables
OR Odds ratio
PAHO Pan-Amencan Health Organlzation
PAMA P r o g r a m de Adecuaci6n y Manejo Ambiental
PBI Product0 Bruto Intemo
PCBs Polychlormated biphenyls
PCF Prototype Carbon Fund
PCM Presidencia del Consejo de Mmistros
PCS-1E Programa de Ciudades Sostembles - Primera Etapa
PETT Proyecto de Titulacibn de Tierras y Catastro Rural
PGMF Plan General de Manejo Forestal
PHRD Japan Policy and Human Resources Development Fund
PIGARS Plan Integral de Gestion Ambiental de Residuos Solidos
PEA Plan Integral de Saneamento Atmosf6rico
PM Particulate matter
PMlO Particulate matter less than 10 mcrons in s u e
PM2 5 Particulate matter less than 2 5 mcrons in slze
PNDF Plan Nacional de Desarrollo Forestal
PNPAD Plan Nacional de Prevencion y Atencion de Desastres
PNR Plan Nacional de Prevencibn y Control de la Deforestacion
POA Plan Operativo Anual
POP Persistent organic pollutants
PPM Parts per m l l i o n
PRAL Programa Regional de Are Limpio
PRODUCE M m s t e n o de l a Producci6n
PROFONANPE Fondo Nacional por las Areas Naturales Protegidas por e l Estado
PRONAMCHCS P r o g r a m Nacional de Manejo de Cuencas Hidrogrificas y Conservaci6n de
Suelos
PSP Private sector partxipation
PTS Particulas Totales e n Suspensi6n
RAD Restncted actwity days
RAMSAR Wetlands Convention
RFF Resources for the Future
RNSC C i v i l Society Natural Reserves
RR HH Recursos Hidricos
RR ss Residuos Sohdos
SDPA Sociedad Peruana de Derecho Ambiental
SEAS Strategic Envlronmental Assessments

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Sistema Nacional de Informaci6n Ambiental
VOLUME 2

TABLE OF CONTENTS

Executive Summary ....................................................................................................................... vi1


Chapter 1- Country Environmental Analysis: An Overview ......................................................... 1
Chapter 2 - An Evolving Environmental Management Framework ............................................... 7
Chapter 3 -Aligning Environmental Priorities with the Needs o f the M o s t Vulnerable .............. 35
Chapter 4 - Reducing Disease and Death Caused by Environmental Degradation....................... 68
Chapter 5 - Reducing Vulnerability to Natural Disasters ............................................................. 95
Chapter 6 - Sustainable Fisheries Through Improved Management and Policies....................... 114
Chapter 7 - Conservation of Natural Assets: Soils, Forests, and Biodiversity ............................ 133
Chapter 8 - Enhancing Competitiveness Through Improved Environmental Protection............ 170
Chapter 9 - Opportunities and Challenges for Effective Environmental Management............... 199
Chapter 10 - A Way Fonvard...................................................................................................... 228
Annex 1: Technical Summary o f the Cost o f Environmental Degradation ................................. 242
Annex 2: Technical Summary o f the Cost-Benefit Analysis ....................................................... 261
References .................................................................................................................................... 271

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EXECUTIVE SUMMARY‘

1. Peru i s one o f the most ecologxally diverse countries in the world, endowed with a large
and diverse territory and an enormous wealth o f natural resources. However, Peru’s natural
resources have not been used to develop a diversified and resilient economy. Instead, throughout
Peruvian history, there i s a pattern in which a specific commodity triggers an economic boom
shortly followed by resource depletion and collapse (Castro, 2005). Some commodities that have
experienced these boom-and-collapse cycles include guano (1 850s-I870s), saltpeter (1 860s-
1 8 7 0 ~ )rubber
~ (I890s-19 lo), and anchovies (1960s-1970s). The boom o f the agro-industrial
sector lasted for more than seven decades, until it finally collapsed when the agrarian reform o f
1969 redistributed land property rights. Mining activities have remained a pillar o f the national
economy since colonial times, but have not been exempt from problems, including a decline in
mineral production during the late eighteenth century that had economy-wide implications. The
causes o f these pernicious cycles are multiple, but it i s clear that they include policy and
institutional failures, including ill-defined property rights.

2. Until recently, the development o f economic activities and the adoption o f land-use
patterns took place in the absence o f adequate environmental safeguards. Although mineral
resources have been extracted for centuries, it was only in the early 1990s that the Government o f
Peru (GoP) took the first steps to address the environmental and social impacts o f the mining
sector.2 Inthis context, effluents and materials generated by mining activities were not adequately
disposed o f and generated significant impacts on ecosystems and public health. The negative
effects o f mining are s t i l l a matter o f concern, as indicated by well-documented evidence. For
example, a study carried out by the Ministry o f Health in several locations in Trujillo found that,
because o f water pollution from mining and industrial activities, 23.5 percent o f the sampled
population had cadmium blood levels that exceeded international standards (DIGESA, 200 1).
Unsustainable agricultural practices were associated with the most significant environmental
problems during the 1940s-197Os, when most o f Peru’s population was rural. In 1940, 65 percent
o f Peru’s population lived in the Sierra (Pulgar-Vidal, 2006). High population density in an area
with scarce agricultural land contributed to a decrease in farm size and intensification o f
agncultural practices that eventually led to loss o f soil fertility, decreased yields, erosion and,
ultimately, migration to other areas.

3. W h i l e acknowledging that the problems o f mining’s environmental legacies and


unsustainable apcultural practices persist, and the possibility o f future environmental problems,
today’s most important environmental challenges in Peru consist o f reducing the incidence o f
waterborne diseases and illnesses caused by urban and indoor air pollution, and minimizing
vulnerability to natural disasters. These categories o f environmental damages have an economic
cost o f 3.7 percent o f gross domestic product (GDP), and primarily affect the poor. Future
environmental challenges could result from the expansion o f transportation infrastructure aimed
at increasing accessibility to the eastern parts o f the country. The construction o f roads in the
Amazon has often been accompanied by uncontrolled forest burning, illegal logging, slash-and-
bum agnculture, destructive mining, unplanned developments and plantations that might lead to
the destruction o f critical watersheds and wildlife habitats. Consequently, efforts to mitigate

This section was prepared by Emesto Sanchez-Triana and Santiago Enriquez.


Since 1993, Peru has taken concrete steps t o mitigate the negative social and environmental impacts o f the mining
sector, including (a) creating an institutional framework t o harmonize institutional responsibilities and environmental
legislation; (b) developing environmental sectoral norms; (c) defining environmental standards for water, air and soil
quality; and (d) elaborating an inventory o f mining’s environmental liabilities w o r l d Bank, 2005e).

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potential future environmental challenges would need to control these potential detrimental
activities and their cumulative impacts. In addition, efforts would be needed to prevent
plundering and uncontrolled exploitation o f Peru’s land and natural resources, as has occurred in
the past throughout the Amazon; to control unplanned settlements and unregulated extractive
mining activities; and to prevent wide-scale lawlessness.

4. Peru has responded to its environmental challenges by developing and continuously


strengthening an environmental management framework. The National Code for Environment
and Natural Resources was adopted in 1990 after extensive consensus building among
stakeholders. Chapter XI1 o f the Code contained norms t o regulate the evaluation, enforcement
and monitoring o f natural resource management, thereby constituting a first effort t o integrate the
different actions to control water, air, noise and visual pollution that were managed independently
by different entities. In 1994, the National Council for the Environment (CONAM) was
established as a coordinating body with a mandate to propose, manage and evaluate national
environmental policy. Various other legal instruments and entities have been created to address
specific areas, ranging from forests and biodiversity t o the regulation o f sectoral activities and the
integration o f a national environmental system. However, the development o f the environmental
sector has been strongly resisted by sectors that perceive environmental protection as an obstacle
to economic growth. In 1991, such resistance l e d t o the abolishment o f Chapter XI1 o f the Code,
through the approval o f the Framework L a w for the Growth o f Private Investment, which
formalized the distribution o f environmental management among line ministries. Furthermore,
Peru has neither an independent environmental enforcement agency nor a planning system to
rigorously define national environmental prionties and allocate resources accordingly.

5. Recent events highlighting the consequences o f environmental degradation and depletion


o f natural resources have reinvigorated efforts to strengthen Peru’s environmental management
framework. The media have widely covered the environmental legacies o f mining and conflicts
over mining concessions, which have become the emblem o f social and indigenous movements.
The devastating effect o f natural disasters associated with the occurrence o f El Nit70 in 1998 and
the collapse o f the hake and anchovies fisheries in recent years have triggered short-term
institutional responses t o these issues. In this context, Peru has approved over the last five years
new laws t o regulate the use o f Environmental Impact Assessments (EIAs), strengthen the legal
framework o f the forestry sector, and advance toward a more integrated and decentralized
environmental management system. These efforts constitute the initial steps o f the reforms that
Peru needs t o carry out to address the urgent environmental problems o f environmental health and
vulnerability to natural disasters, and to ensure that the environment i s safeguarded as
decentralization advances, new developments take place in the Peruvian Amazon and other
sensitive areas, and new land-use patterns are adopted. However, Peru will need to carry out
profound reforms t o strengthen i t s environmental institutions t o ensure that sound environmental
stewardshp and the sustainable use o f natural resources contribute to build a more diversified and
resilient economy.

CEA Objectives

6. The objectives o f the Country Environmental Analysis (CEA) center on presenting an


analytical framework t o support the GoP’s efforts toward achieving integration o f the principles
o f sustainable development into country policies and programs and reversing the loss o f
environmental resources. The findings o f the CEA are expected to help design and implement
policies to (a) improve the effectiveness and efficiency o f Peru’s environmental management
system; and (b) integrate principles o f sustainable development into key sector policies, with an

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emphasis on protecting the most vulnerable groups. The CEA’s main elements are analyses o f (a)
the institutional capacity for environmental management in Peru, (b) the cost o f environmental
degradation, (c) the most environmentally sensitive specific sectors, and (d) the effectiveness and
efficiency o f existing policy and legslative and regulatory frameworks to address priority
environmental concerns.

7. The CEA was prepared through an open participatory process. An initiation workshop
was organized in Paracas, Peru in October o f 2005 t o build consensus on the importance, scope,
and methodologies o f the Analysis. The CEA’s preliminary findings were presented in the V I
Ecodialogue, which took place in Iquitos, Peru in March o f 2006. The findings and
recommendations o f the CEA were disseminated in a workshop held in Lima, Peru, on June 6-7,
2007. These workshops involved the participation o f a broad range o f stakeholders, including
representatives o f agencies from various sectors, including environment, health, finances,
agnculture, and energy and mines; regional environmental authorities; the private sector; NGOs;
indigenous communities; civil society; and international organizations.

Institutional Framework

8. Peru’s environmental management framework has continuously evolved over the past
decades. T o gain a better understanding o f the institutional challenges, the C E A examines the
landmarks in the evolution o f environmental management in Peru during 1950-2005. This
analysis focuses on four broad areas: (a) conservation and management o f natural resources, (b)
conservation o f biodiversity, (c) sectoral environmental management and pollution control, and
(d) environmental health.

9. Conservation and management o f natural resources i s one area in which Peru has
registered some o f i t s most important achevements. During 1962-1992, the National Office for
the Assessment o f Natural Resources (ONERN) led institutional efforts to foster the development
o f the agncultural sector through investments in integrated watershed management, including
projects for reforestation, land-use management, erosion control and aquaculture. In 1992,
ONERN was transformed into the National Institute for Natural Resources (INRENA). INRENA
executes its mandate to manage public forests, soil and water resources and biodiversity through
three key departments: (a) the Intendancy o f Forestry and Wild Fauna, (b) the Intendancy o f
Natural Protected Areas, and (c) the Intendancy for Water Resources. This organizational
structure, supported by an evolving legal framework, has allowed W N A to support the
expansion o f irrigation infrastructure (with an increasing role o f Water Board Users in i t s
operation and management), and to maintain deforestation rates below those o f neighboring
countries. However, INRENA has also evidenced technical and administrative limitations that
should be addressed to ensure the sustainability o f these resources.

10. Biodiversity conservation has been one o f Peru’s environmental priorities. The National
System for Protected Areas currently comprises 61 protected areas, covering 17.66 million
hectares, representing 13.74 percent o f the country’s total area. Biodiversity conservation i s
regulated by various legal instruments, inchding the Convention on Biological Diversity, ratified
in 1993, and the L a w for the Conservation and Sustainable Use o f Biologcal Diversity, approved
in 1997. The Peruvian Trust Fund for Protected Areas (Fondo Nacional por las kreas Naturales
Protegidus por el Estado - P R O F O N M E ) was established in 1992 to raise funds for the
conservation o f protected areas. PROFONANF’E has been successful in increasing i t s funds and
using them to leverage additional resources, with an estimated US$90.6 million having been

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channeled through PROFONANPE to support conservation efforts. Nonetheless, the development
o f a financial strategy has not been matched by increased administrative and operative
capabilities, and the Intendancy o f Protected Areas has been unable to spend PROFONANPE’s
funds efficiently. In addition, a systematic priority-setting mechanism i s missing, and
conservation efforts have largely been defined in response to demands from the donor
community.

11. Sectoral environmental management has developed unevenly across sectors. Peru’s
institutional framework assigns the main regulatory responsibilities o f pollution control and
environmental management to the environmental units created within each sector’s authority. The
Energy and Mining sector spearheaded these efforts by developing sectoral norms based on the
use o f Environmental Impact Assessments (EIAs), Environmental Management and
AdaptatiodCompliance Plans (PAMAs), and Maximum Permitted L i m i t s (LMPs), and by
establishing an independent entity to enforce environmental norms in the electricity and
hydrocarbon subsectors. Environmental units have also been established in the Ministries o f
Production, Transport and Communications, and Housing, Construction, and Sanitation. Despite
these efforts, Peru’s sectorized approach to environmental management and pollution control has
evidenced significant weaknesses, including wide variation across sectors in developing
appropriate regulations to safeguard the environment and limited institutional capacity to apply
those regulations effectively. Furthermore, lack o f overall coordination and clarity o f
environmental approvals processes affects investor confidence and weakens the country’s long-
term competitiveness.

12. Government support of, and commitment to, environmental health management have
been mixed. Since the 1940s, various entities have been created and reformed to address
environmental health issues under the Ministry o f Health. Currently, the General Directorate for
Environmental Health (DIGESA) i s the only governmental institution with a regulatory mandate
for environmental health issues. DIGESA’s mandate includes (a) operating national analytical
laboratories; (b) establishing and enforcing human health safety norms and standards; and (c)
inspecting and controlling environmental health matters related to water supply, sewage, wastes
and air quality. Recent efforts to mitigate environmental health risks have involved actions to
control air pollution, such as the establishment o f air quality standards involving various
parameters, including particulate matter (PM1 0), and measures to reduce the generation o f solid
wastes. Although important, these steps will be insufficient to reduce environmental health risks,
which currently represent Peru’s most important environmental problem.

Revisiting Environmental Priorities for the Most Vulnerable Groups

13. A study was conducted as part o f the CEA to identify the environmental problems that
are associated with the most significant economic costs (Larsen and Strukova, 2006a). The study
estimated that the economic costs o f environmental degradation, depletion o f natural resources,
natural disasters and inadequate environmental services (such as inadequate sanitation) amount to
8.2 billion soles, equivalent to 3.9 percent o f GDP in 2003. The analysis shows that the most
costly problems associated with environmental degradation are, in decreasing order, inadequate
water supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoor
air pollution; and agncultural soil degradation. The costs o f deforestation and inadequate
household solid waste collection are substantially less than the former categories (Figure 1). It
should be noted that these estimates are based on very conservative assumptions that aim to
reduce uncertainties associated with data constraints.

X
WaB supply, sanitation,
Outdoor air pollution
Natural disasters
Lead ex p u r e
Indoor air pdlutjon
I Soils degradation
D€!fOff?SUOll
Municipal wastes collecijon

0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0% 1.1%

Source: Larsen and Strukova (2006a)

14. The cost o f environmental degradation in Peru i s higher than in other countries with
similar income levels. Studies o f the cost o f environmental degradation conducted in Colombia,
an upper-middle-income country in Latin America, and several lower-middle-income countries in
North Africa and the Middle East show that the monetary value of increased morbidity and
mortality typically lies below 2 percent o f GDP in these countries. This corresponding figure for
Peru i s 2.8 percent o f GDP (Figure 2).

I
Figure 2. Costs of Environmental Degradation
(Health and Quality of Life)

3 5%
3 0%
I
25%

II
ci 2.0%
2 1.5%
s
0

1 0%
0 5%
0 0%
I Egypt Peru Colombia Lebanon Altrena Swia Mmocco Tunisia 1
Source: Tunisia and Lebanon: Sarraf, Larsen and Owaygen (2004); Algeria: Ministere de 1’Amknagement du Territoire
et de 1’Environnement (2002); Egypt: World Bank (2002a); Morocco: World Bank (2003); Syria: Sarraf, Bolt and
Larsen (2004); Jordan: METAP (2000). Note: The cost in Peru includes health effects and natural disasters.

15. The burden o f these costs falls most heavily on vulnerable groups. The poor are exposed
to greater environmental risks than hgher-income groups and lack the resources to mitigate those
risks. Environmental health impacts often have more severe repercussions o n the poor than on the
non-poor, because the latter tend to have more resources to cope with such events, better access to
health services and better health in general. Environmental impacts and natural disasters can also
result in a loss o f income or assets that i s more detrimental for the livelihoods o f the poor than for
the non-poor. I t i s estimated that the impact o f environmental degradation for the poor relative t o
the non-poor i s 20 percent higher per 1,000 people, and 4.5 times higher per unit o f income,
highlighting the importance o f environmental degradation as a barrier to reducing inequality.

16. The impacts o f urban air pollution relative t o income are more severe for the poor than
for the non-poor. Health impact relative t o income i s a u s e h l indicator, because illness and

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premature mortality result in medical treatment costs and lost income, in addition to pain,
suffering and restriction o f activity. Based on this indicator, health impacts are between 75 and
300 percent higher among the poor.

17. The impacts o f waterborne diseases are several times higher for the poor than for the non-
poor. Both child mortality and child diarrheal prevalence have a strong correlation with poverty.
Official data indicate that the child mortality rate among the poorest 20 percent o f the population
was five times hgher than among the richest 20 percent, while child diarrheal prevalence among
the poorest 20 percent was two times higher than among the richest 20 percent. Based on these
data and on the higher relative share o f children in the poor population, i t i s estimated that health
impacts per 1,000 people are three times higher in the poor population than in the non-poor
population. The difference i s even higher in terms o f effects relative to income, with impacts in
the poor population estimated to be 10 times higher than for the non-poor.

18. The impacts o f indoor air pollution are highly concentrated among the poor. Around 10
percent o f the urban population and more than 85 percent o f the rural population use solid fuels
for cooking and heating. Although data are not available on the percentage o f poor and non-poor
population that use solid fuels, it i s reasonable to assume, based on urban and rural poverty rates
o f 40 and 65 percent, respectively, that almost the entire 10 percent o f the urban population and
around 65 percent o f the rural population that use solid fuels are poor. Under these assumptions,
an estimated 80 to 85 percent o f the total health effects would be among the poor. This share
could be even higher in the plausible cases that poor households use more polluting stoves and
have worse general health conditions.

19. The priorities identified by the analysis o f the cost o f environmental degradation are
consistent with public perceptions. Water contamination and air pollution were identified as the
environmental issues o f greatest concern in a national survey on environmental awareness
conducted in 1997. At that time, 85 percent o f survey respondents expressed the view that
environmental problems must be solved promptly (Instituto Cuanto, 1998). In a different survey
conducted in 2004 in the Lima-Callao region, 80 percent o f respondents identified air pollution
as the principal environmental problem in the area (GEA, 2004).

20. Responding to environmental health problems and vulnerability to natural disasters,


which are associated with the highest costs o f environmental degradation in Peru, will require
establishing specialized agencies with clear responsibilities and adequate resources to address
these priorities. The GoP’s existing organizational structure i s inadequate to reduce vulnerability
to natural disasters, since there i s n o national entity in charge o f articulating and leading the
implementation o f a long-term strategy for incorporating disaster prevention and r i s k assessment
into national and regional development planning. With respect to environmental health,
DIGESA’s limited resources and relatively l o w hierarchy would constitute severe obstacles to
solving Peru’s severe environmental health problems. Therefore, the C E A recommends the
following agencies in the short run:

a. An autonomous Environmental Health Agency within the Ministry o f Health, with


responsibilities for regulating environmental quality parameters that affect health,
including (i) emissions o f PM2.5, lead and toxic pollutants; (ii)
fuel quality to tackle
air quality; and (iii)water-quality parameters such as bacteriological quality,
Persistent Organic Pollutants (POPS), Volatile Organic Compounds (VOCs) and
heavy metals.

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b. An autonomous agency with responsibilities for designing, and ensuring the adoption
of, nonstructural measures to prevent natural disasters.

Environmental Health

21. Negative health impacts represent more than 70 percent o f the costs o f environmental
degradation. Increases in morbidity and mortality resulting from urban air pollution and lead
exposure; inadequate water supply, sanitation and hygiene; and indoor air pollution have an
estimated cost o f 5.85 billion soles (Figure 3).

Figure 3. Costs o f EnvironmentaIHealth Damage


in Peru

Urban air pollution Water supply, Indoor air pollution


and lead exposure sanitation, and
hygiene

22. Urban air pollution i s one o f the most widespread and serious problems in Peru’s cities
and i s responsible for an estimated 3,900 premature deaths per year. Peru i s already undertaking
substantive measures to eliminate lead in fuels. Thus, the CEA discusses more thoroughly the
r i s k s associated with exposure to PM, particularly those o f less than 2.5 micros (PM2.5), which
have a strong documented relationship with negative health effects. T h e problem o f air pollution
i s most critical in the country’s industrial corridors, such as Lima-Callao, which bears almost 75
percent o f the estimated cost o f associated health impacts. Pollutant concentrations in parts o f
Lima are higher than in other Latin American cities with severe air pollution, such as Mexico
City and Santiago, and are considerably higher than in cities outside the region, including Los
Angeles, Tokyo and Rome, which have successfully reduced their ambient concentrations o f air
pollutants, despite having larger industrial and transportation sectors (Figure 4).

...
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Figure 4. PMlO Average Annual Concentrationsin Selected Cities (pglm3)

pglm3= micrograms per cubic meter


Source: World Bank (2005~)

23. As part o f the preparatory work for the CEA, a study evaluated several interventions
aimed at reducing urban air pollution. These included the introduction o f low-sulfur diesel; the
use o f compressed natural gas in buses and taxis; changes in the bus fleet t o larger, cleaner buses;
improved inspection and maintenance programs for vehicles; retrofitting particulate control
technology for vehicles; a phaseout o f two-stroke engmes in “baby taxis”; better facilities for the
use o f bicycles; and the introduction o f industrial abatement technologies. Three sets o f
recommendations emerge from the study as short-term actions that the GoP could undertake to
reduce health risks associated with ambient air pollution:

a. Implement interventions to control air pollution, including (i) retrofit diesel-powered


vehicles; (ii)introduce a vehicle inspection and maintenance program with rigorous
vehicle emissions testing; (iii)reduce sulfur content in diesel t o less than 500 parts
per million, including increasing clean imports o f diesel with low-sulfur content; and
(iv) control emissions from stationary, mobile and non-point sources.

b. Establish national ambient standards for PMlO and PM2.5 in priority urban areas,
and strengthen technology-specific emission standards for P M and i t s precursors,
particularly sulfur and nitrogen oxides.

c. Implement a program to monitor air quality to keep track o f PM2.5, PMlO and ozone
in priority urban areas.

24. In spite o f the important reductions that Peru has achieved in child mortality from
diarrheal illnesses, diarrheal prevalence in both adults and children remains high. Poor
households are most severely affected, because their relatively l o w income and education interact
with lack o f access t o basic services to generate a very high risk o f diarrheal illness. An analysis
conducted as part o f the CEA estimated the costs and benefits o f four water supply, sanitation and
hygiene interventions: (a) handwashing by mothers or caretakers o f young children in rural and
urban areas, (b) improved water supply in rural areas, (c) safe sanitation facilities in rural areas
and (d) drinlung water disinfection at point-of-use in urban and rural areas.3 The analysis
concluded that benefits would exceed the costs o f each o f these interventions, and that they could

3
Each intervention i s considered independently o f other possible interventions, with the aim o f providing benefit-cost
ratios for each intervention that the GoP might consider implementing.

xiv
reduce the costs o f environmental health effects by more than 300 million soles per year (Figure
5).4 However, for handwashing among adults in households without young children, the benefits
were not found to exceed the costs. Based on this analysis, the CEA recommends promoting
handwashing programs that target children under the age o f five, as well as safe water programs
that include the disinfection o f drinking water at point-of-use. Implementing these actions in the
short run could help the GoP reduce the health risks associated with inadequate water supply,
sanitation and hygiene.

Figure 5. Water Supply, Sanitation and Hygiene Interventions

4,
Urban

3
Safe rural 4
sanitation
facilities
i

2 -
Urban drinking
water disinfection

I J
1
Handwashing
(adult health)

0 ,

B/C = Benefit-cost r a t i o
CED = C o s t o f environmental damage (Le., cost o f health effects)

25. Uncertainties regarding behavioral changes should be considered when evaluating the
different interventions that could be conducted to reduce waterborne diseases. Infi-astructure and
hardware improvements (water and sanitation facilities) are predominantly functions o f provision.
It can be safely assumed that households will use these facilities if design and service delivery
reflect demand and provide convenience. On the other hand, evaluating interventions that involve
changes in household behavior (improved hygene and disinfection at point-of-use) entail greater
uncertainties, since authorities can promote such behavior, but actual behavioral changes are
beyond their control. T o account for such uncertainties, the analysis o n which Figure 4 i s based
assumes a response rate o f 15% among targeted households and behavioral change being
sustained for two years, both o f which are very conservative estimates.

26. The urgency o f controlling water pollution to protect and improve public health cannot be
overemphasized. Most o f the sectoral agencies responsible for regulating water-pollution control
have focused on a limited range o f activities and have established legal limits o n a reduced
number o f parameters, most o f which have aesthetic or ecological significance, but minimal
importance for human health. The dearth o f relevant regulations in this area i s a problem that
should be solved, since waterborne diseases are a significant cause o f morbidity and mortality in

4 .
Figure 4 does not consider the possible interaction effects between different interventions (i.e., h o w the impacts o f a
first intervention affect those o f a second intervention), because data constraints preclude a sound analysis o f such
effects.

xv
Peru. In this context, the GoP should consider developing specific regulations and enforcement
mechanisms in the short run to control water-quality parameters that have health implications,
such as pathogens, volatile organic compounds and persistent organics. As mentioned above, the
severity o f environmental health problems underscores the need for the creation o f an
autonomous Environmental Health Agency responsible for enforcing health-related parameters.

27. Indoor air pollution (LAP), associated with the use o f solid fuels for cooking and heating,
has a well-documented relationship with negative health effects, particularly with acute lower
respiratory illness (ALRI) in childten under age five, and chronic obstructive pulmonary disease
(COPD) and lung cancer in adult females. IAP i s most severe in poor rural communities and
predominantly affects women and children, who spend more time in closed areas with high
concentrations o f pollutants associated with the use o f solid fuels. The analysis conducted as part
o f the CEA evaluated various interventions to eliminate indoor air pollution from solid fuels,
including the installation o f improved wood stoves with chimneys and using cleaner fuels in both
individual households and in community lutchens. Benefits from replacing unimproved stoves
with improved ones in households were found to be almost seven times larger than the costs.
Substituting liquefied petroleum gas (LPG) for unimproved stoves, or substituting L P G for a
combination o f unimproved stoves and L P G was also estimated to have higher benefits than
costs. Conversely, the benefits o f substitutingclean fuel (LPG) for improved stoves were found to
be slightly smaller than the costs o f L P G at current market prices. Substituting improved stoves
for unimproved ones in households, and substituting clean fuel alone for a m i x o f unimproved
stoves and clean fuel, and the use o f clean fuel in community lutchens could reduce the cost o f
environmental health effects by 250 million soles per year (Figure 6). Based on the analysis, the
most efficient interventions that the GoP could implement in the short run to reduce the cost o f
environmental degradation associated with IAP are (i) promoting the use o f L P G and other
cleaner fuels in areas that predominantly use fuelwood, and improving safe and cost-effective
availability of, and access to, fuelwood for users; and (ii) implementing a program to promote
improved stoves.

xvi
Figure 6. Indoor Air Pollution Interventions’

I stoves I
7.0 f

6.0

5.0 ~ Community Kitchens (clean


fuel from unimproved
household stove)

fuel from improved


3.0 I I household stove)
Clean fuel (from mix
of clean fuel 8.
I I I
I
unimproved stove)
2.0
Clean fuel (from Clean fuel
mtx of clean fuel 8 (from improved
improved stove) stove)
1.o
I * f

0.0 j I
0 50 100 i50 200 250 300 350 400
CED reduction (million Soles per year)

BIC = benefit-cost ratio


CED = cost o f environmental damage (that is, cost o f health effects)

Natural Disasters

28. Peru’s incidence o f natural disasters i s nearly twice that o f Latin America as a whole,
while i t s rate o f fatalities i s the highest o n the entire continent (Charvkriat, 2000). Peru’s
geographic location partly explains such a high incidence, because the country i s in one o f the
planet’s most seismically active areas and i s recurrently affected by the atmospheric and oceanic
conditions caused by E l Niiio. The most prevalent types o f disasters during 2000-2004 were
strong winds, floods and heavy rains. However, floods, earthquakes, frost and snow, and drought
have affected a larger number of victims. Different data series show an increasing frequency o f
natural disasters over both the short and long term. Although some o f these disasters have distinct
natural sources, others-notably flooding and landslides-are increasingly influenced by human
activities that modi@ environmental conditions and create a greater predisposition to more severe
effects. Soil erosion and deforestation have contributed to higher flood risk in exposed and low-
lying areas, and contribute to creating the conditions for mass soil movement resulting in
landslides and huaycos (mudflows). Urbanization and greater demographic density have
increased exposure to potential disasters in specific areas that concentrate socioeconomic
activities.

~~

5
The benefit-cost ratios included in Figure 5 reflect both health benefits and the value of time-savings. Benefit-cost
ratios are based on upgrading to improved stoves in 33 percent of rural households, use of LPG in community Iutchens
for 15 percent of rural households, and switching to LPG alone from a mix of unimproved stoves and LPG in 5 percent
of rural households An upgrade from unimproved stoves to LPG i s not included in Figure 5, since this would represent
a double counting of reductions in health effects from indoor air pollubon because switching from unimproved stoves
i s already reflected in the upgrade to improved stoves

xvii
29. Reducing vulnerability t o natural disasters should constitute a short-term priority for the
GoP. These events have resulted in a significant cost to the country’s human and physical capital.
I t i s estimated that more than 2 million people were affected by natural disasters during 2000-
2004, at an annual cost o f approximately one billion soles or US$325 m i l l i o n (Larsen and
Strukova, 2006a). The poorest and most susceptible have paid the highest costs for these disasters
in damages, deaths and lost assets. These groups tend to be more vulnerable t o natural disasters
for a variety o f reasons. These include the construction o f housing where land i s cheap, frequently
near river bottoms and o n steep hillsides; the lack o f land-use control in these areas; poor quality
construction; lack o f basic mitigation measures; and the marginal livelihoods and limited capacity
for economic resilience o f these groups.

30. To address this problem, i t i s necessary to develop an integrated response t o natural


disasters that emphasizes prevention, vulnerability analysis and r i s k assessment. As discussed
earlier, the GoP should consider establishing an autonomous agency6 in charge o f nonstructural
measures t o prevent natural disasters. This new agency could function independently o f existing
entities focusing o n emergency relief. A crucial element o f the strategy would be the creation o f a
fund to provide incentives for local governments to advance in the preparation and
implementation o f prevention plans. T o reduce vulnerability to natural disasters, the CEA
recommends the adoption in the short run o f structural and nonstructural measures, including the
adoption o f adequate construction technologies, practices and standards in poor urban sectors and
among the rural population.

Natural Resource Management

Fisheries

3 1. Peru’s fishing grounds are the richest in the world. Over 274 m i l l i o n metric tons (MTs) o f
fish were harvested from Peruvian waters during 1950-2001, with anchovies constituting over 75
percent o f total harvest during that period, and currently representing approximately 10 percent o f
the global annual marine catch. The importance o f the anchovies lies not only in i t s social and
economic value as a fishery, but also in its role in sustaining a large and diverse food web that
supports a wide array o f ecosystem goods and services that are essential to maintain marine
biodiversity and productivity. Fisheries also target additional pelagic species, such as sardine,
horse mackerel and chub mackerel, and coastal species that include hake (rnerluza). Inland
fisheries in the Amazon and Highland areas yield an annual 30,000 to 80,000 MT. The fisheries
sector i s a significant contributor to the Peruvian economy, generating around 6 percent of
employment, 1 percent o f GDP, and accounting for 11 to 16 percent o f total export earnings
(which makes i t the second-largest earner o f foreign exchange after mining).

32. The sustainability o f Peru’s fisheries i s critically threatened by several factors. The
overcapacity o f the fishing fleet and the occurrence o f El Nifo have resulted in extreme resource
volatility and overexploitation o f fisheries o f various species, including anchovies and hake.
Economic inefficiencies plague the sector, with vessels remaining idle for most o f the year and
the sector absorbing a substantial amount o f capital to service i t s heavy debts. Additional issues
that should b e tackled t o ensure the sustainability o f Peru’s fisheries include (a) negative
environmental/ecosystem impacts; (b) weak governance and inadequate oversight, manifested in
the existence o f legal loopholes and the granting of “exceptions” that have allowed the sector’s
capacity t o grow despite existing regulations limiting such growth; (c) weak accountability and

The Federal Emergency Management Agency (FEMA) in the United States i s an agency of this type

xviii
lack o f transparency resulting from the influence o f a powerful lobby and the conflicts o f interest
that stem from the dual role o f the Ministry o f Production (Ministerio de la Produccibn -
PRODUCE) in regulatory oversight and production; and (d) social and equity issues, including
the need to develop a domestic market for direct consumption o f species that represent a potential
protein source for the poor, and the dissipation and drain o f resource rents that the government
might collect from the sector to support other socially desirable goals, such as poverty reduction.

45. Continuation o f the existing situation will most likely result in severe overexploitation o f
fisheries and the waste o f scarce economic resources that could be used as a platform to develop a
more diversified and resilient economy. In this context, the GoP should consider institutionalizing
a system o f tradable quotas for the fishing fleet, as a short-term action that would help to reduce
overcapacity in the fishery sector.

Soil Degradation

33. Cultivable land i s a scarce commodity in Peru: arable land amounts to only about 0.155
hectare per capita, one o f the lowest among developing nations. This makes soil erosion, which
affects the whole country and i s particularly severe in the Sierra, a significant challenge. Lack o f
updated statistics precludes a robust assessment o f the severity o f the problem, but data from the
1970s indicate that moderate-to-severe erosion affected 19 million hectares in Peru, and light-to-
moderate erosion affected another 110 million hectares. Different estimates (of which the most
recent date from 1986) consistently conclude a soil loss arising from erosion o f over 300,000
hectares per year. Soil salinity i s also known to affect a significant share o f Peru's cultivated land.
Again, lack o f monitoring makes it impossible to confirm the magnitude o f the current problem,
but studies conducted in the 1970s found that salinity affected 69 percent o f the soils evaluated,
and qualitative evidence suggests that the situation has worsened over time. Larsen and Strukova
(2006a) estimate that farmers' lost revenue caused by soil erosion and salinization i s 544 million
to 918 million soles per year. W h i l e problems associated with land degradation, particularly soil
erosion, have worsened with time, they are s t i l l l o w compared to other countries where similar
analyses have been done (Figure 7).

Figure 7. Costs of Environmental Degradation (Erosion and Salinity)

1.20%
1.OO%
0.80%
2
0
0.60%
0.40%
0.20%
0.00%

Source: Tunisia and Lebanon: Sarraf, Larsen and Owaygen (2004); Algeria: Ministere de l'Am6nagement
du Territoire et de I'Environnement (2002); Egypt: World Bank (2002a); Morocco: World Bank (2003a);
Syria: Sarraf, Bolt and Larsen (2004); Jordan: M E T A P (2000); Peru: Larsen and Strukova, 2006a.

xix
34. Natural factors, including topographic variations and seasonal rains exacerbated by the
periodic occurrences o f EZ Nirib, make the country’s soils vulnerable t o erosion. However, these
natural causes are aggravated by human influences such as overgrazing, deforestation and poor
cultivation practices. Similarly, soil salinity problems are created by a combination o f natural
factors, such as the soil’s naturally high mineral salts levels, and human activities, such as
inefficient irrigation. Concerns regarding soil degradation are deepened by the evident and
progressive disinvestment o f the Peruvian government over the past 30 years in mechanisms t o
address the problem. Recommended short-term actions that would help redress this situation
include (i) conductinghpdating a new national inventory o f soil erosion and salinity; (ii) revising
the 1969, 1989 and 1990 Water Laws to authorize higher, broad-based fees for water use; and (iii)
ending the preferential treatment for rice in water allocation in coastal irrigation projects.

Water Resources Management

35. Peru i s endowed with abundant water resources. I t has a national average freshwater
supply o f almost 60,000 cubic meters per capita, a figure that i s several orders o f magnitude
larger than for other Latin American countries such as Mexico and Argentina. However, water
resources are unevenly distributed throughout the territory, and the largest share o f the population
and economic activities are located in the dry Coastal region, generating considerable stress o n
the resource. The agncultural sector consumes the vast majority (86 percent) o f available water at
the national level. This pattern i s emulated in the Coastal region, where 58 percent o f the
country’s irrigation infrastructure i s located. The use o f gravity and flooding-irrigation methods,
and the setting o f very l o w irrigation fees that are rarely collected, largely explain a l o w water
efficiency o f 35 percent. These factors have also contributed to drainage and salinization
problems in the Coastal valleys. Historically, water-resources management has focused mainly o n
sectoral users, particularly irrigation,’ and water-supply infrastructure. Recommendations t o
address the water sector’s challenges include continued implementation and strengthening o f a
comprehensive water-rights system, continued modernization o f irrigation practices and river-
basin agencies to improve efficiency, promotion o f integrated land and water management, and
strengthening water-user organizations.

Deforestation

36. With an estimated 68.7 million hectares o f natural forests covering roughly 35.5 percent
o f i t s territory, Peru’s forest cover i s the eighth largest in the world and second only t o Brazil in
Latin America. Fully 99.4 percent o f the forests are located in the eastern (Onente) part o f the
country. The Coastal region has been depleted almost entirely o f i t s forest cover o f mangroves
and dry and sub-humid forests in the Andean highlands, and some 300,000 hectares o f natural
forests remain. Recent estimates suggest that Peru’s deforestation rate between 1990 and 2000
was roughly 150,000 hectares per year, representing an annual cost of approximately 440 million
soles or US$130 million (Elgegren, 2005; INRENA, 2005; Larsen and Strukova, 2006a).
Proximate factors leading to deforestation in Peru include slash-and-burn agriculture, woodfuel
extraction, and overgrazing in the Sierra; and large-scale agnculture and forest plantations,
narcotics traffickers who clear forests t o grow coca and t o build illegal runways, cattle ranching,
and the development o f roads and infrastructure in the Amazon. Yet, increasing demand for land
and resources driven by demographic growth, rural poverty rates o f as much as 70 percent,
undervaluation o f the environmental services provided by forests, and policy failures represent
some o f the ultimate causes o f deforestation.

7
An Irrigation Strategy stressing the importance o f the subsector was discussed and approved among the authorities.
T h i s strategy was used as a basis for the Water Resources Strategy discussions.

xx
37. The 1975 Forest and Wildlife Law that governed the forest sector until 2000 had serious
flaws including the lack o f recognition o f the needs o f indigenous populations, the granting o f
excessively small (1,000 hectares) annual forestry contracts, and the encouragement o f an
exploitative relationship between small loggers and the timber industry and intermediaries. The
new Forestry and Wildlife L a w o f 2000 strengthened the sector’s institutional framework by
introducing 40-year timber concessions for 5,000 to 50,000 hectares, allocated through
transparent public bidding. Among the most important features o f the law are requirements for
sustainable management plans based on forest inventories and census, and access rights to forest
resources. However, implementation o f the new law has been characterized by inadequate
planning and scheduling o f the initial public bidding process; poor mapping o f the concessions, in
turn creating access difficulties to concessions and conflicts with concessionaires who argue that
they received something different from what they bid for; lengthy delays in administrative
processes that make timely harvesting difficult; and inadequate monitoring o f the illegal timber
trade. Major factors limiting the sector’s development have been the concessionaires’ general
lack o f adequate capital; lack o f access to credit; and lack o f sufficient technical, business and
forest management experience. Based on the experience to date, the CEA recommends
suspending concessioning processes in the short run until necessary reforms are made to
overcome existing problems.

Biodiversity

38. Peru i s recognized as one o f the world’s 12 mega-diverse counties, hosting 70 percent o f
the world’s biological diversity and a very large number o f endemic species. Peru’s biological
diversity represents a source o f comparative advantage for the development o f commercial
species, including the alpaca and vicufia, Brazil nuts, tropical fish, the peccary (for meat and
hide), orchids and medicinal plants. Although these species may not have the same commercial
potential o f crops such as potato or maize, they constitute the basis for a more diversified
apcultural activity that can contribute to the country’s sustained economic growth. Among other
conservation efforts, Peru has established 61 natural protected areas that cover 13.74 percent o f
i t s total territory, a relatively high figure when compared with other biologxally diverse countries
in Latin America and other regions (Figure 8). Peru’s biological wealth has attracted much
attention from international organizations and nongovernmental organizations (NGOs), which
have supported numerous efforts to establish baseline data and monitor biological diversity in
different biodiverse or biologically fragile sites.

Figure 8. Nationally Protected Area (% o f land)

Source: World Bank (2005a)

xxi
39. W h i l e progress has been achieved in the use and conservation o f biodiversity, Peru faces
the challenge o f integrating a consistent biodiversity management framework that i s supported at
the highest political level. Specifically, there i s a need to guarantee the sustainability o f existing
conservation efforts, particularly because current legislation does not assign clear responsibilities
to different entities with mandates on biological conservation, nor does i t foster interagency
coordination. Further, the application o f the existing body of regulations and policies i s
chronically deficient, there i s limited capacity to properly manage biodiversity at the regional and
local levels, and the country lacks a standardized monitoring system to assess the status of, or
changes in, biological diversity. T o that end, the CEA recommends strengthening the institutional
capacity o f key actors, clearly defining CONAM’s roles and functions, supporting national efforts
to value biological diversity and environmental services, building on Peru’s comparative
advantage in biological diversity, and refining coordination mechanisms among donor agencies.

40. T h e GoP i s considering addressing the institutional weaknesses that affect the
management o f water and biodiversity by establishing two independent and financially
sustainable agencies. First, a national water authority has been included in a Water Resources
Management bill. T h i s agency would have a mandate for overseeing the allocation o f water rights
by Water User Boards and enforcing secondary water-quality standards for parameters such as
biological oxygen demand, chemical oxygen demand, PH, iron, manganese and salts. The bill
proposes a series o f instruments to financially support the national water authority, including
water fees based on the quantity and quality o f water assigned to users, and pollution charges on
parameters regulated by secondary water-quality standards. A second agency would be in charge
o f the conservation and use o f biodiversity, including the management o f national parks.
Resources to fund the functioning o f this agency would come from the National Fund o f the
Natural Protected Areas o f Peru (Fondo Nacional por las Areas Naturales Protegidas por el
Estado - PROFONANPE) and would also be collected through fees charged for entrance to
national parks and for the use o f biodiversity. If these reforms come t o fruition, INRENA would
be redefined as a specialized agency responsible for managmg forests and soils. Under this
scheme, INRENA would carry out i t s activities through watershed councils and be funded
through stumpage fees and taxes on forests or soil degradation.

Environmental Assessment and Sectoral Environmental Management

41. Environmental Impact Assessment (EIA) i s the main instrument for sectoral
environmental management in Peru. However, conflicting conceptions o f the EIA have turned the
instrument into a bureaucratic obstacle for projects with minimal environmental impacts, while
constraining i t s use as a decision-malung tool for managing and resolving complex environmental
and social issues. Limitations in the use o f EIAs include (a) lack o f standardization and
uniformity in the content and scope o f EIAs across and within sectoral ministries, (b) the
conception o f public participation as events for sharing information rather than for receiving
critical input and (c) weak enforcement o f EL4 commitments.

42. The approval in 2001 o f the National System for Environmental Impact Assessment
constitutes an important step to address these issues, but specific regulations still need to be
developed to ensure that EIAs are inclusive and standardized mechanisms through which social
and environmental concerns can be incorporated into the project l i f e cycle. Because EIA i s the
main instrument for sectoral environmental management in Peru, issuing specific EIA regulations
constitutes one o f the recommended short-term actions that the GoP might consider implementing
to strengthen the country’s environmental institutional framework.

xxii
43. Existing inconsistencies in the approach, content, timing and requirements o f the E M
legal and regulatory process in Peru create a lack o f standardization and uniformity in the project
planning and approval process. Given this situation, CONAM i s designing regulations for a
unified EIA process-including screening and scoping criteria for all ministries and sectoral
authorities-that i s consistent with the existing legal fkamework and incorporates aspects o f best
EIA practice. T h i s will ensure consistency with the proposed SEIA regulations and avoid the
proliferation o f different E M standards between sectors. T o enhance EIA’s effectiveness, it i s
suggested that the need be minimized for carrying out EIAs for projects that pose n o
environmental threat or risk. Carrying out fewer EIAs by concentrating on significant projects
with regonal, precedent-setting impacts would greatly improve the quality o f EIAs and increase
opportunities for meaningful public consultation and community participation.

InstitutionalAnalysis

44. Peru has conducted important efforts to consolidate an organizational structure that can
respond to the country’s environmental challenges. These efforts have generated considerable
dividends, particularly in the conservation o f biodiversity and natural resources management.
However, the existing organizational structure has severe limitations that hinder an efficient
response to the country’s current and future environmental challenges. These limitations originate
from three main sources: (a) lack o f an integrated environmental planning system, (b) lack o f
sufficient management capacity, and (c) weak accountability and monitoring and enforcement
capabilities.

45. One o f the most serious weaknesses o f Peru’s environmental management framework i s
the lack o f capacity for environmental planning. An assessment o f the costs o f environmental
degradation and a review o f surveys on public perceptions indicate that environmental health
problems and the reduction o f vulnerability to natural disasters are the problems that require
attention most urgently. However, a review o f environmental expenditures and an institutional
analysis, both conducted as part o f the CEA, conclude that environmental health and the
reduction o f vulnerability to natural disasters have received minimal attention. T h i s misalignment
between environmental priorities, institutional efforts and resource allocation i s largely due to (a)
the absence o f an integrated system o f reliable data to provide analytical support to the decision-
malung process; (b) the lack o f representation o f vulnerable groups; and (c) the absence o f a
formal mechanism for allocating financial and human resources according to clearly defined
environmental priories that are linked to poverty alleviation and social priorities.

46. The lack o f management capacity constitutes a fundamental challenge in terms o f


implementing environmental regulations and plans. Most entities must cope with either
insufficient funding or with the variable resources provided by the donor community. Human
resource capacities vary from one agency to another. Some entities, including DIGESA, have
been affected by the downsizing o f the public sector (World Bank, 2000, 2005d). Other
organizations, such as CONAM, lack a critical mass o f human resources with sufficient technical
expertise to analyze and formulate environmental policies in highly complex sectors. Peru’s
sectorized approach to environmental management exacerbates these problems, because agencies
focus their efforts on the specific interests o f the sectors they represent, and not on the solution o f
environmental problems that require a multi-sectoral approach.

47. The absence o f a formal mechanism for environmental planning and priority setting has
been associated with inadequate funding for the environmental sector and decreases in the
national government’s total environmental expenditure. Between 1999 and 2005, annual

xxiii
environmental expenditure has represented around 0.01% o f GDP. Thus, resources allocated for
environmental protection constitute a small fraction o f the estimated costs o f environmental
degradation and are l o w by international standards, particularly when compared t o OECD
countries, which typically spend 0.05 to 0.07% o f GDP. Peru’s falling allocations for the
environmental sector have taken place within a favorable economic context and could therefore
indicate a relative loss o f importance o f environmental challenges relative t o other social
concerns. Ensuring adequate funding for the environmental sector from the national budget, as
w e l l as from additional sources, i s essential t o develop the necessary capacity to address Peru’s
most pressing environmental concerns.

48. Accountability, enforcement and monitoring capacity require urgent improvement.


Accountability i s diluted by (a) the absence o f clear responsibilities and capacities among
agencies and by (b) the lack o f an effective voice for the poor, stemming f r o m a lack o f
awareness and the absence o f sound mechanisms for public participation. Monitoring capacity i s
constrained by a lack of reliable time series data o n the state o f the environment and natural
resources, the nonexistence o f a system o f results-focused indicators o f environmental quality,
and insufficient resources to ensure an adequate institutional presence in the field. Enforcement
has been suboptimal mostly because enforcement power ultimately rests in the same ministries
that are responsible for sector development, but also because quality standards s t i l l need t o be
defined in many areas.

49. Major reforms are needed t o address Peru’s institutional weaknesses and respond t o the
country’s most pressing environmental challenges. There i s a definite need t o assign clearer
duties and functions t o all the sector’s agencies t o avoid overlaps and conflicts o f interest, build
organizational capacities to deliver and be responsive t o environmental needs, and establish the
incentives and mechanisms for inter-agency coordination within and outside the sector. The CEA
recommends the creation o f an independent task force integrated by high-level representatives o f
the Congressional and Executive branches, as well as from those groups most affected by
environmental degradation, to assess the alternative structural reforms.

50. Strengthening the environmental sector will require the establishment or reorganization
o f governmental bodies to ensure an adequate response to environmental priorities (Table 1).
Based o n international experience, which indicates that specialized governmental agencies tend to
be more effective than a single agency with a wide mandate, the CEA recommends the creation
o f a national environmental health agency, an agency to reduce vulnerability t o natural disasters,
a national water agency and a centralized environmental regulatory body. Inter-agency
coordination will remain crucial even within a new institutional framework given the cross-sector
nature o f various environmental priorities, including indoor and outdoor air pollution, and
inadequate water supply, sanitation and hygiene.

xxiv
Table 1. Proposed Institutional Arrangements

-2
3
P
3
?
!
Ec

Coordinaion,designand J
implementationof
environmentalpolicy

Enforcementof s, J
environmentalpolicies

I I I I I I I

Enforcenicnt of potlution s, s , s ,
control measures

ls,ls,
Enforcemento f natural
resources management
regulations
I I I I I

Environmental permitting J + s , s , +

1 EIA

Reduction of J s , s , + s ,
vulnerability to natural
dissters
Conservationand
protectedareas

I I I I
Water and forestry rights
allocation
+ + J J

5 1. Strengthening CONAM’s capacity to coordinate and foster consensus building among


key sectors should constitute one o f the GoP’s priority actions in the short run. As the lead
environmental authority, CONAM should play a lead role in ensuring the coordination o f
different agencies to address priorities that require a multi-sectoral approach, as well in
incorporating sub-national agencies in the response to regional environmental challenges.
CONAM should also assume the prime responsibility for ensuring that the GoP’s resources are
primarily devoted to address the nation’s environmental priorities instead o f sector priorities.

52. The GoP should consider pursuing short-term actions to address the existing
misalignment between environmental priorities and resource allocation. These include the
following:

a. Develop a robust priority-setting mechanism based on (i)the impacts o f


environmental degradation on the poor and other vulnerable groups; (ii) the most
urgent needs as perceived by the population, gauged through the conduct o f surveys,
(iii)the major private and public costs and risks that environmental degradation

xxv
imposes o n the overall society; and (iv) and analysis o f the effectiveness and
efficiency o f environmental policies and o f alternative interventions to reduce the
cost o f environmental degradation.

b. Establish a planning process to align environmental expenditures with priorities.

53. Formal evaluation and learning mechanisms should be incorporated in the short run into
the management routines o f all the institutions in Peru’s environmental system. The systematic
establishment o f baselines and the evaluation o f governmental interventions constitute an
appropriate tool to gauge progress, incorporate the lessons from past experience, and adjust
policies based on new developments in science and technology. The information collected w i t h
this tool i s crucial for building performance-based indicators, which allow organizations to set
measurable goals, evaluate their achievements, and engage in a process o f reforming and
improving their practices. Performance-based indicators also have the potential to strengthen the
environmental sector by enhancing transparency and accountability, as well as by demonstrating
the social benefits o f investing public resources in environmental protection.

Conclusion

54. The highest costs o f environmental degradation in Peru are, in decreasing order o f
magnitude, inadequate water supply, sanitation and hygiene; urban air pollution; natural disasters;
lead exposure; indoor air pollution; land degradation; deforestation; and inadequate municipal
waste collection. Combined, these environmental problems cost 8.2 billion soles, or 3.9 percent o f
Peru’s GDP. The poor and vulnerable populations bear a disproportionately high amount o f this
cost. T o address these problems, this report identifies a number o f cost-effective policy
interventions that could be adopted in the short and medium t e r m to support sustainable
development goals.

55. In recent decades, there has been considerable progress in addressing a biodiversity-
conservation agenda. The high mortality and morbidity rates suggest the need to increase
emphasis on environmental health interventions. However, the environmental management
agenda has yet to catch up with this shift in priorities to strengthen environmental health
programs, because mechanisms in the current institutional structure to signal these changes are
not yet in place. Improved monitoring and dissemination o f information on environmental
outcomes, assignation o f accountabilities for environmental actions and outcomes, and
involvement o f a broad range o f stakeholders are three important mechanisms to allow these
signals to be picked up.

56. Table 2 summarizes the main recommended short-term actions.

xxvi
Table 2. Recommended Short-Term Actions

Objective Recommended Short-Term Actions

[nstitutional reform Develop a priority-setting mechanism based on (a) the impacts o f


environmental degradation on the poor and other vulnerable groups,
(b) the most urgent needs as perceived by the population, and (c) the
major public and private costs and risks that environmental
degradation imposes on the overall society. (Cost: low)
Establish a planning process to align environmental expenditures with
priorities. (Cost: low)
Strengthen CONAM’s capacity to coordinate and foster consensus
building among sectors.(Cost: modest)
Issue regulations for the Environmental Impact Assessment Law.
(Cost: low)
Establish Environmental Health Agency withm the Ministry o f
Health to regulate environmental quality parameters that affect health,
including (i) emission o f PM2.5, lead and toxic pollutants; (ii)
fuel
quality to tackle air quality; and (iiiwater-quality
) parameters such as
bacteriological quality, Persistent Organic Pollutants (POPS), Volatile
Organic Compounds (VOCs) and heavy metals. Implement reforms
being proposed by the government, such as the establishment o f an
environmental regulatory body (Procuraduria Ambientao to address
the enforcement o f all productive sectors. (Cost: modest)
Establish an autonomous agency responsible for nonstructural
measures to Drevent natural disasters. (Cost: modest)
Reduce health risks Establish national ambient standards for PM2.5 and P M l O inpriority
associated with ambient air urban areas and strengthen technology-specific emission standards for
pollution P M and its precursors (particularly sulfur and nitrogen oxides). (Cost:
low)
Implement a program to monitor air quality to keep track o f PM2.5,
PM10, and ozone inpriority urban areas. (Cost: modest)
Implement interventions to control air pollution, that includes (a)
promoting the retrofitting o f diesel-powered vehicles, (b)
implementing a program to test vehicle exhausts, (c) reducing sulfur
content in diesel to less than 500 parts per million, including
increasing clean imports o f diesel with low-sulfur content; and (d)
controlling emissions from stationary, mobile and non-point sources.
(Cost: modest to high)

Reduce health risks Promote handwashing programs that target children under the age o f
associated with inadequate five. (Cost: low)
water supply, sanitation
and hygiene Promote safe water programs that include disinfection o f drinking
water at point-of-use. (Cost: low)
Reduce cost of Promote the use o f L P G and other cleaner fuels in areas that
environmental degradation predominantly use fuelwood, and implement actions to improve safe
associated with indoor air and cost-effective availability and access to fuelwood for users.
pollution (Cost: modest)

xxvii
Objective Recommended Short-Term Actions

Implement a program to promote improved stoves. (Cost: modest)

Reduce vulnerability to Adopt structural and nonstructural measures to reduce vulnerability to


natural disasters natural disasters, including the adoption o f adequate construction
technologies, practices and standards inpoor urban sectors and among
the rural population. (Cost: modest)

Reduce soil degradation Conducthpdate new national inventories o f (1) soil erosion and (2)
soil salinity. (Cost: low)
0 Revise the 1969, 1989 and 1990 Water Laws to authorize higher,
broad-based fees for water use. (Cost: low)
End preferential treatment for rice in water allocation in coastal
irrigation projects. (Cost: low)

Reduce deforestation 0 Suspend concessioning process until further reforms are made. (Cost:
low)

Reduce overcapacity in Institutionalize a system o f tradable quotas for fishing fleet. (Cost:
fishery sector modest)

xxviii
CHAPTER 1

COUNTRY ENVIRONMENTAL ANALYSIS: AN OVERVIEW’

1.1 Over the last five decades, Peru’s environmental management framework has evolved
into a large set o f regulations, policies, and institutions that aim to respond to the country’s
environmental concerns. Recent efforts have brought encouraging results, particularly in
advancing towards the integrated management o f water resources, and creating one o f the most
consolidated systems o f Natural Protected Areas in the region. The establishment o f agencies,
including the Office o f Natural Resources Evaluation (ONERN) and the National Institute for
Natural Resources (INRENA), as well as the approval o f legislation such as the General Water
L a w o f 1969 and the L a w o f Forestry and Wildlife (with i t s first version dating from 1975 and a
newer version promulgated in 2000), have been instrumental. However, the country faces
significant challenges in controlling pollution and advancing sectoral environmental management
and, most importantly, in addressing environmental health impacts, disaster prevention, and r i s k
mitigation. More recently, Peru has taken a number o f initiatives to further integrate the different
elements o f i t s environmental management framework, including the establishment o f the
Structural Framework for Environmental Management o f 1993, the National Environmental
Management System L a w o f 2004, and the General Environmental L a w o f 2005.

1.2 Environmental degradation and depletion o f natural resources constitute a formidable


obstacle to Peru’s efforts to eradicate poverty, reduce inequality, and develop a more diversified
and resilient economy. The principal causes o f environmental degradation represent more than
3.9 percent o f the country’s GDP, mainly due to increased morbidity and mortality and decreased
productivity. Inadequate water supply, sanitation, and hygiene alone are estimated to generate a
social cost o f over one percent o f GDP, with 82% o f that cost attributed to health impacts that
chiefly affect children under the age o f five. Indoor air pollution, representing around 0.4 percent
o f GPD, imposes a significant burden on vulnerable groups, such as children and women in poor
rural households. These individuals must rely on solid fuels for coolung and heating, and spend
prolonged periods o f time in closed areas with high concentrations o f pollutants resulting from
the use o f such fuels. As these two environmental problems illustrate, poor households are often
exposed to greater environmental risks, lack the resources to mitigate those risks, and are
therefore affected in a way that further reduces their chances o f escaping poverty.

1.3 Some o f Peru’s highest costs o f environmental degradation are associated with the
country’s growing urbanization. Greater concentration o f populations and economic activities in
specific areas has led to h g h levels o f atmospheric pollutants and to a larger number o f people
being exposed to their negative impacts, which represent 0.9 percent o f GDP. Urban populations
have also been exposed to lead pollution, and exposure to pollutants i s aggravated by inadequate
solid wastes collection, amounting to 0.5 and 0.05 percent o f GPD, respectively. Urbanization has
also meant that a greater number o f people are affected, and the economy i s most severely struck
when a city i s devastated by a natural disaster. This phenomenon occurs more frequently, and
l u l l s more people, in Peru than in the rest o f Latin America. Natural disasters also highlight the
importance o f sustainable resource management, not only as a means to optimize the economic
benefits o f fisheries, forestry, and other activities, but as an indispensable element in controlling
the anthropogenic factors that result in greater vulnerability to natural disasters.

* T h i s chapter was prepared by Emesto Sanchez-Triana.

1
1.4 If managed sustainably, Peru’s profuse endowment o f natural resources could become a
pillar o f an increasingly diversified and robust economy. Peru’s fishing grounds and natural
forests are among the most abundant in the world, while its ecosystems host a wide and highly
endemic biodiversity. Each o f these factors could support the development o f commercially
valuable products, broaden the range o f activities fueling the country’s economic growth, and
generate significant revenues to support the country’s social agenda. However, as the analysis
demonstrates, institutional and policy failures threaten the sustainability o f Peru’s natural
resources and are largely responsible for leaving their potential fundamentally untapped. Other
natural resources, such as water and cultivable lands, are under severe stress. Unless immediate
actions are taken to modify current patterns o f resource utilization, growing resource scarcity i s
likely to result in heightened social conflict and diminished contributions to the country’s
sustainable growth by related economic activities, including agriculture.

1.5 Over the past five decades, Peru has restructured its legal and regulatory landscape,
undertaken numerous policy initiatives, and dramatically expanded and strengthened i t s
institutional capacity for protecting and managing the natural resources and environmental quality
vital to sustainable growth and poverty reduction. While the government made significant
advances, such as establishing a system o f national parks and forestry reserves that covers nearly
a quarter o f the national territory and phasing out leaded gasoline, it still faces the serious
challenge o f slowing and reversing environmental degradation.

Objectives o f the Country EnvironmentalAnalysis

1.6 The objective o f the Country Environmental Analysis (CEA) i s to present an analytical
framework t o support the efforts o f the Government o f Peru toward achieving integration o f the
principles o f sustainable development into country policies and programs and reverse the losses
o f environmental resources.

1.7 Through i t s examination o f urban environmental issues such as air pollution and
untreated hnlung water that affect the most vulnerable population groups, the CEA provides the
analyhcal underpinnings for designing policies aimed at achieving MDG &reducing child
mortality-by addressing the causes o f respiratory illness, diarrhea, and other principal factors in
morbidity and mortality for children under age five.

1.8 The findings o f the CEA are specifically expected to help design and implement policies
t o (a) improve the effectiveness and efficiency o f Peru’s environmental management system, and
(b) integrate principles o f sustainable development into key sector policies, with an emphasis o n
protecting the most vulnerable groups. The main elements o f the CEA are analyzes o f (a) the
institutional capacity for environmental management in Peru; (b) the cost o f environmental
degradation; and (c) the effectiveness and efficiency o f existing policy, and legislative and
regulatory frameworks t o address priority environmental concerns.

CEA Process and Linkages with other Bank Products

1.9 The CEA was initiated in October 2005 through a workshop in Paracas, Peru, involving
national stakeholders and development partners. Participants included representatives o f agencies
from various sectors, including environment, health, and energy and mines; regional
environmental authorities; and the private sector; nongovernmental organizations, and

2
international organizations. Workshop participants provided valuable input for the overall
diagnosis o f the state o f the environment in Peru, helped to identify crucial information gaps that
needed to be addressed by the CEA, and recounted Peru’s progress in establishing a solid
environmental management framework. The workshop also provided a venue for building
consensus regarding the importance, scope, and methodologes used to carry out the analysis.

1.10 T h e preliminary results o f the C E A were presented during the V I Ecodialogue, which
took place in Iquitos on March 22-24, 2006. The event had more than 400 representatives from
public entities, indigenous peoples, professional associations, academic centers, nongovernmental
organizations, and c i v i l society. The representatives engaged in an open dialogue about Peru’s
most pressing environmental challenges.

1.11 The findings and recommendations o f the CEA were disseminated in a workshop that
took place in Lima, Peru, on June 6-7,2007. The workshop involved more than 150 participants,
including representatives from MEF, INRENA, DIGESA, MINAG, MEM, the National
Ombudsman and the Prime Minister’s Office, as well as from the private sector, NGOs and civil
society.

1.12 The CEA i s aligned with the Peru Country Assistance Strategy (CAS). The CAS aims to
address three strategic areas: (i)competitiveness, (ii)equity and social justice, and (iii)
institutionality. With respect to competitiveness, the C E A analyzes, and recommends responses
to, the main weaknesses in environmental management that have a direct, negative impact on the
quality o f the country’s business climate and the competitiveness o f i t s businesses. Furthermore,
the C E A provides the analytical underpinnings to arrest environmental degradation, which i s
clearly associated with declines in productivity, mainly through negative health impacts,
increased vulnerability o f natural resources, and reduced yields from overexploited natural
resources. Regarding equity and social justice, the CEA focuses primarily o n the impacts o f
environmental degradation on vulnerable groups, particularly the poor and their children. The
CEA builds the case for mitigating the environment-related health impacts o f vulnerable groups
as the GoP’s first environmental priority. Furthermore, the CEA includes detailed analysis o f the
cost-effective interventions that the GoP could undertake to that end. With respect to
institutionality, the CEA proposes institutional reforms that would help increase accountability,
improve compliance with environmental standards, and foster overall better environmental
performance. If implemented, these reforms are expected to help the GoP to set environmental
priorities, taking into account the voice o f multiple stakeholders, and align resources and
institutional efforts to address those priorities. Finally, the CEA i s part o f the CAS renewed focus
on environmental issues.

1.13 The CEA builds on previous Bank analytical work. The report Peru: Environmental
Issues and Strategic Options (World Bank, 2000) provided a f i r s t analysis o f Peru’s most serious
environmental challenges and the institutional weaknesses that impeded an articulate response to
those challenges. A study o f wealth and sustainability in the mining sector analyzed the major
environmental and social impacts associated with Peru’s mining sector (World Bank, 2005e). The
CEA deepens the existing analytical foundation by incorporating the findings o f the various
studies that were commissioned to address existing data gaps, estimate the costs o f environmental
degradation, assess more thoroughly the impacts o f environmental degradation o n vulnerable
groups, and propose cost-effective policy interventions.

1.14 The CEA provides new insights regarding areas where the Bank has long been involved.
Active Bank projects support Peru’s efforts in a number o f areas, including (i)
expansion o f water
supply and sanitation in urban and rural communities through the Lima Water Rehabilitation and

3
Management Project and the National Rural Water Supply and Sanitation Project; (ii) improving
soil and water management in the agricultural sector through the Agricultural Research and
Extension Program (currently in Phase 2) and the Peru Irrigation Subsector Project Supplemental
Loan; (iii)establishing cleaner and safer mass rapid transit systems. through the Lima Transport
Project; and (iv) strengthening the management o f protected areas with the participation o f local
communities through the Indigenous Management o f Protected Areas in the Peruvian Amazon
Project, the Participatory Management o f Protected Areas Project, and the Vilcanota Valley
Rehabilitation and Management Project. The C E A analyzes the institutional frameworks in which
these projects take place and recommends policy reforms that, if implemented, would facilitate
meeting the projects’ objectives. Furthermore, such reforms would create an enabling
environment in which further projects can take place.

1.15 Further research will be necessary to refine the analysis provided by the CEA on a
number o f topics. Basic data are missing on most o f the critical environmental issues faced by the
country. In many instances, such as estimating the costs o f environmental degradation, the CEA
attempts to tackle the problem by applying data from other countries and, when appropriate,
adjusting for income disparities. In other cases, the C E A identifies the additional analysis that
should be conducted prior to deciding whether a specific policy should be implemented. This i s
the case for most o f the policies that are expected to reduce urban air pollution and for the
interventions that could be conducted to arrest soil degradation.

CEA Summary

1.16 The report has 10 chapters. Chapter I presents an overview o f the report. Chapter 2
examines the evolution o f Peru’s environmental management framework over the last five
decades. The analysis presented in Chapter 2 finds that the country has developed a considerable
institutional capacity associated with important achievements in the areas o f natural resource and
biodiversity management. However, pollution control and environmental health problems have
not generally been considered as national priorities, although the latter currently represent the
country’s greatest environmental challenge. The chapter also reviews Peru’s achievements in the
structuring o f a National Environmental Management System as well as related aspects being
debated at the end o f 2005.

1.17 Chapter 3 analyzes the cost o f environmental degradation in Peru. The analysis shows
that the environment-related problems with the highest costs are, in decreasing order, inadequate
water supply, sanitation, and hygiene; urban air pollution; natural disasters; lead pollution; indoor
air pollution; soil degradation; inadequate municipal waste collection; and deforestation. The
effects o f environmental degradation associated with these principal causes are estimated to cost
approximately 3.9 percent o f GDP, mainly due to increased mortality and morbidity and
decreased productivity. The burden o f these costs falls most heavily on vulnerable segments o f
the population, especially the poor and their children under the age o f five, who are often exposed
to higher environmental health risks than the non-poor and lack the resources to mitigate those
risks.

1.18 Chapter 4 focuses on the health impacts o f environmental degradation on both urban and
rural communities. The chapter estimates the costs and benefits o f various interventions to
address waterborne diseases, indoor air pollution, and urban air pollution in Peru. Waterborne
diseases exert a significant economic cost, particularly on the poor, who often lack adequate
sanitation and water supply. An analysis o f various interventions that could address waterborne
diseases concludes that the most cost-effective approach would be the design and implementation

4
o f a safe water program that promotes hygienic behavior through handwashing and improvements
in water quality at the point o f use. Urban air pollution generates a significant environmental
health risk for the nearly 50 percent o f Peru’s population living in the country’s major cities.
Introducing l o w sulfur diesel would unambiguously result in net economic benefits stemming
from associated reductions in health impacts. However, further assessment i s needed to estimate
the efficiency o f additional interventions that could help address the problem in the short run and
achieve additional cutbacks in particulate matter emissions. Indoor air pollution i s a particularly
severe problem in poor rural households that must rely o n solid fuels for coolung and heating.
Cost-effective interventions that can reduce the impact o f indoor air pollution include the
adoption o f improved cooking stoves and/or the use o f cleaner fuels.

1.19 Chapter 5 discusses problems associated with natural disasters, particularly floods and
landslides. More than 2 million Peruvians were affected by natural disasters during 2000-2004, at
an annual cost o f approximately US$325 million. The analysis recognizes that while some o f
these disasters have distinct natural sources, others-notably flooding and landslides-are
increasingly influenced by human activities, such as deforestation and practices leading to soil
erosion, which modify environmental conditions and create a greater predisposition to more
severe effects. T h e poorest and most vulnerable have paid the highest costs for these disasters in
damages, deaths, and lost assets. A number o f actions are recommended to address t h i s issue,
particularly nonstructural measures to prevent human settlements in areas that are highly
vulnerable to natural disasters, as well as specific actions to incorporate risk management in the
planning activities o f all government levels and to establish adequate institutional mechanisms for
disaster prevention and response.

1.20 Chapter 6 analyzes the issues associated with the management o f fisheries resources.
Peru’s fisheries resources support one o f the c0untry7s most important economic activities and
provide fundamental environmental services. The occurrence o f El Ni60 Southern Oscillation and
the steady expansion o f fishing and processing capacity have been associated with an extreme
resource volatility that could lead to resource depletion if urgent measures are not adopted in the
short run. The sector also faces critical challenges with respect to reducing prevalent economic
inefficiencies, internalizing i t s environmental externalities, and ensuring that the sector
contributes substantial leverage to achieve the country’s social and economic goals. Meeting
these challenges will require conducting an open and transparent process to (i)rationalize
capacity and effort in the fishing sector, (ii)issue effective and efficient environmental
regulations, (iii)strengthen the sector’s research capacity, (iv) initiate a system o f Marine
Protected Areas, and (v) rehabilitate the sector’s legal and regulatory framework

1.21 Chapter 7 discusses the main challenges associated with the sustainable use o f Peru’s
natural resources, particularly water, forests, biodiversity, and soils. While the analysis
acknowledges the country’s achievements in reducing deforestation, protecting biodiversity, and
improving water resource management, i t also identifies a series o f threats and institutional
weaknesses that could undermine the sustainability o f Peru’s efforts. The chapter includes various
recommendations to enhance stakeholder participation in natural resource management, increase
the effectiveness and efficiency o f the agencies with a mandate for natural resource protection
and management, and utilize the country’s comparative advantage in natural resources to develop
commercially valuable products.

1.22 Chapter 8 discusses sectoral environmental management in Peru, which has been
fundamentally based on the environmental impact assessment (EM) system. The analysis finds
that the effectiveness o f EIA in Peru is, however, undermined by the lack o f a uniform
perspective regarding i t s objectives and usefulness. Specifically, there exists an ambiguity among

5
government authorities as to whether the purpose o f EL4 i s to achieve environmental planning or
environmental management. The chapter highlights the need for the government to clarify the
purpose o f EL4 and identifies the need to develop, in addition, appropriate instruments to deal
specifically with environmental problems that are linked to market and policy failures.

1.23 Chapter 9 reviews the environmental management framework in Peru and assesses the
complex institutional system o f checks and balances. T h e chapter finds that Peru’s environmental
management framework has adequate financial resources, but that it i s unable to effectively
support government efforts to promote environmentally sustainable development. This results
from lack o f attention to, and insufficient allocation of, human and financial resources to tackle
key environmental priorities linked to economic development. The chapter highlights the need for
policy and institutional changes to address these factors and to target complementary investments
toward areas that impose high economic costs, but that have not been adequately tackled. In
particular, increased efforts are needed to improve the quality o f l i f e o f the growing number o f
poor people living in and around urban areas in a country where more than 70 percent o f the
population i s urban. T h e goal o f the recommendations i s to support the country’s efforts to move
toward more equitable and sustainable economic growth.

1.24 Chapter I O presents the CEA’s conclusions and recommendations. The conclusions
stress that, while there has been considerable progress in the last decades in addressing the
biodiversity conservation agenda, high urbanization rates suggest the need to increase emphasis
on environmental health issues. However, the environmental management agenda has yet to catch
up with this shift in priorities from biodiversity conservation to environmental health problems,
because mechanisms in the current institutional structure to signal these changes are not yet in
place. Improved monitoring and dissemination o f information on environmental outcomes,
assignation o f accountabilities for environmental actions and outcomes, and involvement o f a
broad range o f stakeholders are three important mechanisms to allow these signals to be picked
UP.

6
CHAPTER 2

AN EVOLVING ENVIRONMENTAL MANAGEMENT FRAMEWORK

To address the historical challenges posed by the extraction of natural resources and
the resulting environmental degradation, the evolution of Peru’s ffamework for
environmental management has focused on five core areas: (i) management and use of
natural resources, (ii) use and conservation of biodiversity, (iii) pollution control and
sectoral environmental management, (iv) environmental health and management, and
(v) natural disasters. These areas have been determined by economic development
issues, population trends and global environmental priorities. The current framework
has yielded significant achievements. A number of reform proposals are under
discussion in Peru, ranging from the creation of centralized agencies for enforcing
environmental regulations and a water agency, to the development of measures for
mitigating the impacts of large investment projects.

Introduction’

2.1 The evolution o f environmental management in Peru has been shaped primarily by
economic development and global environmental issues. The extraction and export o f Peru’s
natural resources (minerals, agricultural products, hydrocarbons, rubber, fisheries and wood) have
been central in the history o f Peru’s economic development and have influenced i t s social and
economic structure. Throughout Peruvian history, however, the repetition o f a pattern can be
observed in which a commodity triggers an economic boom that i s shortly followed by resource
depletion and collapse (Castro, 2005). Commodities that have experienced these boom and
collapse cycles include guano (between the 1850s and 1870s), saltpeter (186Os-l870s), rubber
(1890s-1910) and anchovies (1960s-1970s). The mining sector has proven to be an exception, as
it has remained a pillar o f the national economy since colonial times. Nevertheless, that sector has
not been exempt from problems, including a decline in mineral production during the late
eighteenth century that had economy-wide implications.

2.2 Efforts to address the challenges posed by the sustainable exploitation o f Peru’s natural
resources have been focused on five issues historically considered to be in greatest need o f
regulation and enforcement. The management and use o f renewable natural resources i s the issue
that has received the most attention. According to official data, 65% o f Peru’s population lived in
the Sierra in 1940 (INEI, 1999). High population density in an area with scarce agricultural land
contributed to a decrease in farm size and intensification o f agricultural practices that eventually
led to loss o f soil fertility, decreased yields, erosion and ultimately migration to other areas.

2.3 Partly in response to these issues, significant efforts have been made regarding the
management and use of renewable natural resources. These efforts include investments in
irrigation, decentralization o f water resources to Water User Boards ( W U B s - Juntas de
Usuarios) and increases in agricultural production between 2000 and 2005. Other significant
achievements include establishing, in the legal framework o f the Forestry L a w o f 2000,
institutional conditions for the sustainable management o f forest resources (Pulgar-Vidal, 2006).
The revised rate o f deforestation (150,000 hdyear) i s significantly lower than in neighboring
countries (Brazil, Bolivia and Ecuador).

This chapter was prepared by Renan Poveda, Emesto Shchez-Triana and Carolina Urmtia. This chapter draws from
background documents prepared by Pulgar-Vida1(2006), D. Lee (2006), D. Olson (2006) and G. Castro (2005)

7
2.4 The conservation o f biodiversity and Natural Protected Areas (NPAs) has had
considerable achievements including these actions: (i) enactment o f the Natural Protected Areas
Law o f 1997, which defines the role o f the country's protected areas to conserve biological diversity
and their associated cultural, landscape and scientific values, and the establishment o f the National
System o f NPAs, which currently comprise 17.66 million hectares, or 13.74% o f the country's
total area; (ii)
creation in 1992 o f the Peruvian Trust Fund for National Parks and Protected Areas
(PROFONANPE); and (iii) the increasing number o f specialized non-governmental organizations
that support efforts to conserve biodiversity and protected areas.

2.5 Pollution control and sectoral environmental management have been based on a
framework o f environmental licensing and enforcement, with environmental impact assessment
(EIA) and environmental management and adaptatiodcompliance program (PAMAS) serving as
core instruments". Until recently, the development o f economic activities and adoption o f land-
use patterns took place without adequate environmental safeguards. Although mineral resources
have been extracted for centuries, it was only in the early 1990s that the Government o f Peru
(GOP) took the first steps to address the environmental and social impacts o f the mining sector".
In this context, effluents and materials generated by mining activities were not adequately
disposed o f and generated significant impacts on ecosystems and public health. Unsustainable
agricultural practices were associated with the most significant environmental problems during
the 194Os-l970s, when most o f Peru's population was rural. Since 1992, a number o f ministries
have established environmental units for the implementation o f environmental regulations and
maximum permissible levels (LMPs). Sector-specific laws and regulations have been developed
since 1993, particularly for some key sectors such as mining and energy".

2.6 A fourth core area i s environmental health. Efforts to manage environmental health began
in the 1940s through the General Directorate for Environmental Health (DIGESA) o f the Ministry
o f Health (MINSA). DIGESA has faced numerous institutional challenges that have affected i t s
overall capacity. Nonetheless, there have been recent milestones in environmental health such as
the establishment o f a program to improve personal hygiene and promote safe water programs
and the phase-out o f leaded fuel in 2005.

2.7 Regarding natural disasters, historically, the National Institute for Civil Defense
(INDECI) has emphasized disaster mitigation and relief, rather than disaster prevention
(including the analysis o f disaster risk) and adaptation. Only in the past five years have
institutions begun designing action plans for disaster prevention, risk assessment and the
reduction o f vulnerability.

2.8 Attempts to integrate these areas have been made through the enactment o f integral
national legislation and the creation o f a national environmental authority, the C O N A M (Table
2.1). Such efforts include the incorporation o f environmental considerations in the 1979 and 1993
Constitutions, the enactment o f framework laws such as the National Code for Environment and
Natural Resources (Cbdigo Nacional del Medio Ambiente y 10s Recursos Naturales - CMARN),
the Structural Framework for Environmental Management o f 1993 (Marc0 Estructurulpara la
Gestidn Ambiental - MEGA), The National Environmental Management System Law o f 2004 (Ley
del Sistema Nacional de Gestibn Ambiental) and the General Environment Law o f 2005 (Ley
General de Ambiente - LGA).I3

Environmental impact
lo studies became integral 'assessments' after the EL4 L a w o f 2001.
l1Since 1993, Peru has taken concrete steps to mitigate the negative social and environmental impacts o f the mining
sector, including: (i)creating an institutional ffamework to harmonize institutional responsibilities and environmental
developing environmental sectoral norms; (iii)
legislation; (ii) defining environmental standards for water, air, and soil
quality; and (iv) elaborating an inventory o f mining environmental liabilities, among others (World Bank, 2005e).
12
The Ministry o f Mining and Energy, for instance, has developed at least 13 laws and rulings that directly address
environmental issues pertaining to the mining sector.
l3 Table 2.1 does not provide an exhaustive list o f all the environmental functions assigned by the legislation to
governmental agencies; it provides a list o f only the governmental agencies with a major environmental role, based o n

8
Table 2.1. Landmarksin the Evolution of EnvironmentalManagement in Peru

I Year I Landmark
1962 Establishment o f the ONERN
1969 Enactment o f the Sanitary Code (now abolished)
1969 Enactment o f the Water Law
1975 Enactment o f the Forestry and Wildlife Law (now abolished)
1977 Conservation Units Regulation enacted
1979 N e w Peruvian Constitution
Creation o f the Peruvian Amazon Research Institute (established by law in 1981)
1984 Creation o f a Task Force for the Development o f the Environmental and Natural Resource
Code (Cbdigo de Medio Ambiente y Recursos Naturales - CMARN)
1985 Creation o f the National Council for Environmental Health (Consejo Nacional del Medio
Ambiente para l a Salud - CONAPMAS)
1989 Multisectoral Commission Report for the Solution o f the Problems at 110 and Ite Bays
1990 Enactment o f the National Code for Environment and Natural Resources - C M A R N
(Legislative Decree No. 613)
1991 Legal and political framework to foster incentives for private investment - the Framework
Law for Private Investment Growth, Legislative Decree No. 757, which established
sectoral-based environmental management
1992 Peruvian report for the UN Conference on Sustainable Development
National Conservation Strategy
I
PROFONANPE established
1992-1993 I ONERN phased out
INRENA-established
1993 N e w Constitution passed
1994 C O N A M established
1996-1997 Design and enactment ofthe legal framework on natural resources
Organic Law for the Use o f Natural Resources
Law for the Conservation and Sustainable Use o f Biological Diversity
Law for Natural Protected Areas
1996-1997 Ecodialogues begin and National Environmental Agenda is discussed
MEGA established
1998 Approval o f the Environmental Quality Standards (ECA) and Regulations on Maximum
Permissible Levels (LMP)
2000 Design and approval o f the political and fiscal policy for forestry
Regional Ecodialogue
2000 Solid Waste Law approved
200 1 Environmental Impact Assessment System Law approved
2002 Forestry Development Law established
2004 SNGA Law enacted
I I
Regional and Local Systems for Environmental Management
General Environment Law Bill presented
2005 National Environmental Agenda 2005-2007 approved
2005 General Law o f the Environment

2.9 T h i s chapter examines the evolution o f Peru’s environmental management framework,


which has been closely tied to the country’s economic development. The findings o f this chapter
are based on secondary information and interviews conducted in Peru during 2005. T h i s chapter
consists o f eight sections. Section Two provides a historical perspective on natural resources
management in Peru. Sections Three through Six describe the evolution o f the environmental
management framework in the following areas: renewable natural resource management,
ecosystem conservation, pollution control and environmental health. The seventh section presents
the advances achleved in the structuring o f the National Environmental Management System.

the review o f relevant legislation.

9
Finally, the eighth section focuses o n the debate regarding the framework for environmental
management at the end o f 2005.

10
3
3

I l l
A Historical Perspective

2.10 Peru’s economy i s highly dependent on i t s rich natural resource base. Extraction o f
natural resources has taken place since before the arrival o f the Spaniards. W h i l e there i s no
scientific evidence to conclude that natural resource degradation was more intense during the
colonial period, selective extraction o f key resources intensified after conquest in order for Peru
to meet i t s mercantile needs with Spain (Castro, 2005). Once the Viceroyalty o f Peru was
established, silver, gold and copper became the principal source o f wealth for the crowni4. Most
o f the core economic activities during the colony concentrated in the highlands, but all the
wealth and resources passed through Lima (the seat o f the viceroyalty and the main port). Thus,
natural resources extraction became dependent upon a centralized political and economic
structure based in Lima, in a pattern that persists until today. The extraction o f key resources
such as minerals and expansion o f agricultural activities have contributed through time to
degradation o f soils, erosion and sedimentation o f watersheds, and to an accumulative pollution
o f soil lakes and rivers (i.e., mercury has been used since colonial times for silver extraction)”.

2.11 For instance, by 1841 the Inca fertilizer guano and saltpeter began to be widely
exploited. Guano became the most important resource in Peru during the mid-19th century, both
for its use as a fertilizer and as fire-powder. By 1859 guano represented close to 75 percent o f
all income, but soon after, production collapsed due to lack o f investments in the industry, poor
policies and unfavorable prices (Castro, 2005).

2.12 Likewise, the rubber business in the Amazon basin had a rapid growth period from the
1890s until it collapsed by 1910. The anchoveta industry became an emblematic example o f a
vast resource that was overexploited and poorly managed from 1960s until mid 1970s. The
collapse o f each o f these commodities had specific reasons that, among others, included weak
management and poor policy formulations. Furthermore, an expansion o f ago-industrial
activities from the beginning o f the 20’ century also failed by 1969 when the agrarian reform
was implemented and redistributed land property rights. In addition, despite introducing
technical features (i.e., vapor-run motors for draining purposes) and creating adrmnistrative
reforms, the mining sector, which has been the most important economic activity since colonial
times, also suffered a gradual decline in production.

2.13 During the twentieth century, the economy began to diversify and important
investments were made in irrigation in the coastal region to support the growing sugar and
cotton plantations. The key resources being exploited during the 20’ century included copper,
sugar, gold, cotton, wool, rubber, fisheries, silver and later hydrocarbons. Each o f these
activities led to specific environmental impacts mainly in the highlands, and to a lesser extent in
the coastal and rainforest regions. For instance, a growth o f the mining sector in the 20” century
led to the creation o f smelters at 110 and at L a Oroya. These smelters have contributed, through
time, to severe air and water pollution. In addition, a large number o f mines have close during
the 20’ century without the adequate measures, leaving behind environmental legacies. A
preliminary inventory carried out by the Ministry o f Energy and Mines in 2003 identified about
610 mining environmental legacies (not including those from state owned companies), o f which
28 percent lacked a legal owner.

l4Organized mining began by 1540 and covered the following key mine deposits during colonial period: Potosi
(1545-1776) in Bolivia; Castrovirreyna (1590) in Huancavelica; Oruro (1608) in Bolivia; Caylloma (1608) in
Arequipa; Laicacota (1619) in Puno; and Pasco in the 1700’s.
’’ By the end o f the XVI century, different regions had specialized on certain crops: (i) the northern coast (Piura and
Tumbes) focused on cotton and goats; (ii) the central coast (Lambayeque to Lima) in sugar; (iii) southern coast (from
Ica to Arica) on wineries; (iv) the northern sierra focused on cattle ranching; (v) the central Sierra focused on wheat,
corn and cattle ranching; and (vi) the southern Sierra focused primarily on tubercular roots, camelids, and cattle.

12
2.14 After mining, industrial growth began around Lima, and fishmeal factories were
established along the coastal areas. O i l and gas have been also key economic activities
developed through the early 1900’s. However, oil production in Peru has declined steadily over
the past two decades, as the country‘s fields have matured and n o major new dmoveries have
provided additional reserves. In contrast to production, Peru’s o i l consumption has grown over
the past 20 years, reaching 161,000 bbl/d in 2004. Peru has been a net importer o f oil since
1992, with most imports coming from Ecuador and other South American countries (US
Department o f Energy, 2005). Regarding gas, the Camisea Project i s the most notable example
in Peru, and one o f great importance to the environmental sector. This project makes use o f one
o f the most important non-associated natural gas reserves in Latin America, and it involves the
operation o f two pipelines, one for natural gas (NG) and one for natural gas liquids (NGL), as
well as the distribution network for natural gas in Lima and Callao.

2.15 A growing rural sector compounded by weak agricultural practices since the 1940s led
to environmental impacts as pesticides and fertilizers began to be over-utilized, and the
agricultural frontier expanded into forested areas. Limited productivity o f soils for agriculture in
the hrghlands combined with relatively high population density led to a growing migration to
urban centers in the coast. Migration also increased during the 1980’s due to a growing wave o f
rural violence and terrorism by the Shining Path. Thus, urban centers (particularly in and around
Lima) grew disproportionately since the 1950’s. Urban environmental problems such as air
pollution, poor water quality, solid wastes issues, intensified. During this period, the fishmeal
plants began to be developed along the coast, contributing to a foul smell and pollution near
urban centers.

Conservation and Administration of Natural Resources

2.16 In 1962, Congress established the National Office for the Assessment o f Natural
Resources (ONERN) through a supreme decree to systematically collect and analyze
information and propose policies for the sustainable use o f natural resources. The mandate o f
this Office was to centralize the evaluation o f natural resources and to develop basic documents
to inform the economic and social development plan and i t s sectoral programs, as well as to
guide structural reforms. Thus, ONERN became the base for the administration and
conservation o f natural resources in Peru between 1962 and 1992. The Office gave priority to
the development and promotion o f the agricultural sector, which traditionally has been very
important in the portfolio o f state investment projects as a way to stimulate the economy in rural
areas. Investments in this sector focused on integrated watershed management projects, which
included reforestation, land use management, erosion control and aquaculture. ONERN had a
number o f commendable achievements that include the publication o f the Guidelines on the
Policy for the Conservation of the Renewable Natural Resources in Peru, which became an
important technical underpinning for the National Strategy for Conservation.

2.17 In 1992, the ONERN was transformed into the National Institute for Natural Resources
(INRENA), reducing many functions, particularly the collection and analysis o f information for
decision making about the state o f natural resources and their potential. The enactment o f the
1993 Constitution and the incorporation o f the Chapter on Natural Resources also strengthened
the regulatory framework for the conservation and management o f natural resources16.During
the development o f the Constitution, the Organic Law for the Use o f Sustainable Resources,
enacted in 1997, defined the State’s scope and the ways in which it would facilitate individuals’
access to resources for their use.

l6The initiative to incorporate natural resource considerations in the Constitution was led by two environmental
NGOs, Sociedad Peruana de Derecho Ambiental (SPDA) and Pro-Naturaleza, between 1992 and 1993. The
participatory process included the conformation o f a Working Group with representatives o f the private and public
sector that received input through workshops in the different regions.

13
2.18 Consequently, in 1993, INRENA became the principal agency responsible for natural
resources management in Peru. I t s mandate includes: (i) the management o f public forests, (ii)
overseeing the 61 natural protected areas, (iii) overseeing wildlife exports and for-profit captive
breeding enterprises, (iv) controlling illegal trade in flora and fauna, (v) promoting sustainable
management o f the nation’s soils and water resources and (vi) validating environmental impact
assessment o f sectoral economic activities in rural areas. INRENA, the environmental agency
with the largest share o f resources, has made substantial progress in a number o f areas.
INRENA internal organization evolved into three key departments: (i) the intendancy for
Natural Protected Areas; (ii)the intendancy for Forestry and Wild Fauna; and (iii)the
intendancy for Water Resources. In addition, INRENA’s office o f trans-sectoral environmental
management has the responsibility for validating EIAs, PAMAs and promoting inter-
institutional coordination”.

Water Resource Management

2.19 Since the 1970s, the ONERN identified the importance o f using water for agncultural
purposes. T h i s came about not only because o f the sheer volume o f agriculture, but because it
generates a significant percentage o f GDP, traditionally over 10 percent. In addition,
agricultural activity involves more than 30 percent o f the Peruvian population. (ONERN, 1969;
ONERN, 1984, Pulgar-Vidal, 2005). Historically, the agricultural sector uses more than 86
percent o f the water available for consumption. I t i s worth noting that most agricultural
production comes from the coastal region, which i s the most arid in the country; consequently,
water availability has been a major constraint. T h i s i s largely due to the considerable imbalance
between the two main regions in the country: the Amazon area, one o f the richest in water
resources in the world, and the Pacific basin; a region characterized by the presence o f the
majority o f the country’s population, characterized by low precipitation, and numerous but
often-intermittent watercourses. Agriculture i s thus highly dependent on irrigation from these
limited sources. As a result, the average per-capita water availability in the Pacific basin i s only
one-third o f the world average (INRENA, 1995). For the preceding reasons, the General Water
Law o f 1969 establishes the Ministry o f Agriculture as the National Water Authority.

2.20 In 1992, INRENA, as a decentralized organism o f the Ministry o f Agriculture, assumed


the management o f water resources. Within INRENA, the Water Resources Intendancy
(Intendencia de Recursos Hidricos) assumed the management o f water resources, including the
supervision and control o f policies, plans, programs, projects and n o m on i t s sustainable use.
The General Water Law o f 1969 and the C M A R N have provided Peru with an adequate stock o f
policy tools, as evidenced by investments o f about US$5 billion between 1970 and 2005 in
irrigation related hydraulic infiastructure including dams and irrigation and drainage systems.
Although such infrastructure has significantly contributed to the development o f the agricultural
sector, C O N A M has concerns regarding inefficiencies in water use and the concentration o f
benefits in a limited extension o f productive land (Bernales, 2006).

2.21 In addition, agricultural exports have become increasingly important to Peru’s economic
development and growth. From 2000 to 2005, agricultural exports have more than doubled, in
part due to INRENA’s water resources management, which has complemented substantial
private sector investment to increase the extension o f productive lands and improve their
productivity (Bernales, 2006). Beginning in 1998, the responsibility for irrigation operation and
maintenance has been transferred from the government to Water User Boards (WUBs - Juntas
de Usuarios). Since the transfer, fees have gradually increased and collection has improved
considerably. In addition, a water rights system has been initiated that includes: (i) a strict
analysis o f water availability and demand, and (ii)linkage to land adrmnistration policies and

l7INRENA has the mandate to review and provide technical observations o f EIAs and P A M A s associated with
agriculture projects and activities affecting protected areas. In addition, INRENA can issue a technical opinion on
EIAs for mining and transport related projects.

14
(iii)development o f a Geographic Information System that includes land titling and water
rights. By 2005, INRENA had issued more than 200,000 water user permits. T h i s water right
system along with the land titling has resulted in reduced conflicts and frustrations among the
farmers, and provided legal certainty that encourages investment in on-farm improvements. The
water rights allocation system i s a regional model for water rights registry across the region.

2.22 A national strategy for water resources management was developed in 2004. Based on
this strategy, between 2004 and 2005 a major effort was made to update the General Water Law.
Currently a bill establishing a National Water Resources authority and River Basin Agencies,
and modernizing water resources management i s awaiting congressional review. These
institutional reforms are similar to Brazil's recent institutional restructuring in the water sector
that has proved to have important institutional advantages for water resources management.
T h i s bill was drafted with the participation o f different entities o f the central government and
included significant participation by the National Water User Board (WUB). I t i s expected that
the issuance and implementation o f the proposed reforms embedded in the Bill would provide
an opporhmity to make additional major advancements in the agricultural sector through
sustainable, integrated land and water resources management (INRENA, 2005).

2.23 Compared to other developing countries, Peru i s well placed to make important
headway towards achieving sustainable integrated water resources management and ensuring
that water availability does not constrain growth. In particular, the water rights system once
fully implemented and operational along with water availability and land use information w i l l
provide necessary elements for water resources planning at the river basin level. The W U B s
provide an important basis for bringing water user participation into the planning and
management mix. The institutional reform including the creation and strengthening o f a
National Water Resources Authority and River Basin Agencies would provide an excellent
institutional framework in support o f these objectives. T o the extent that this institutional
framework strengthens integrated water resource management, it may also help address other
related environmental challenges, including water quality issues and deforestation (Bernales,
2006).

Forestry Resource Management

2.24 Prior to 2000, Peru's forest sector has been governed by the 1975 Forest and Wildlife
Law (Law No. 21147). The law was conceived as a redistributive mechanism to alleviate rural
poverty by encouraging resource-poor loggers to enter into sustainable forest activitiesI8. A
number o f initiatives followed, including preparation o f a National Forestry Strategy (1985-
1996) and a national debate that extended over much o f the 199O's, which eventually led to the
passage o f the formulated Forestry and Wildlife Law (No. 27308) in 2000. In 1993, INRENA's
(through the Forestry Intendancy) assumed responsibility for managing forestry related
programs. The new Forestry Law i s designed to promote the reform and modernization o f the
country's forest sector. The regulatory framework supporting the law was passed a year later in
2001. Following the enactment o f the law and regulatory framework, a national debate sparked
in Congress and in public forums between timber industry representatives and those with a stake
in the old system, as well as local and international organizations, community leaders and other
authorities. The new Forestry and Wildlife L a w aims, among other things, to transform the
sector into an integral part o f sustainable development. The key element o f the new Forestry
L a w i s the introduction o f timber concessions under the supervision o f INRENA19.INRENA

l8 While the l a w was a milestone for the sector, it had a number o f drawbacks, including lack o f recognition o f the
needs o f indigenous populations, the granting o f excessively small (1,000-ha) annual forestry contracts, and the
encouragement o f an exploitative relationship between small loggers and the timber industry and intermediaries.
l9 The Forestry and Wildlife L a w o f 2000 and its 2001 Regulation permit other forms o f access to timber resources:
(1) permits from native communities; (2) permits from private agricultural and grazing plots; (3) extraction from local
forests; (4) authorizations from Northern tropical dry forests; (5) authorization for clear cutting (e.g., for road
opening); and (6) authorization for the use o f trees and shrubs stranded o n river banks. Other forms o f access to non-

15
launched the forest concessions process in March 2002, after establishing the t e c h c a l and
adrmnistrative forestry base suitable for timber production”. The Law also defined a new policy
for forestry management based on consensus and sustainable use for economic development.
For instance, the Forestry Committees o f Dialogue and Consensus Building (Mesas de Dihlogo
y Concertacidn Nacional) have generated agreements on issues such as: (i) the conformation o f
the commission for the public bids for forestry concessions for timber products; (ii) regulations
related to the price o f user’s rights; (iii) a timeline for the concessions; (iv) the concession
contracts; (v) the regulations for local forests; (vi) the rules for the Management Committees;
and (vii) the initiative for the creation o f the Multisectoral Commission on Illegal Logging.

2.25 The new law also reformed the concession process, providing regulations to save
valuable species such as tropical cedar (Cedrela odorata) and big-leafed mahogany (Sweitenia
machrophylla) from commercial extinction. Likewise, the new Forestry L a w also introduced
some other innovative features, such as the definition o f a new category for forest use - Forest
Recuperation Areas, where concessions can be granted on bare or open land for afforestation
and reforestation. Among the most important features o f the law are requirements for
sustainable management plans based on forest inventories and censuses, and access rights to
forest resources. Such access i s secured by renewable forty-year forest concessions o f at least
5,000 hectares granted through a public bidding process aimed to ensure transparency. In
addition, the law introduced the possibility o f establishing payment for environmental services
schemes provided by forests for soil protection, water regulation and biodiversity conservation.
In August 2005, INRENA formed a task force to plan PES implementation.

2.26 The new Forestry Law and its regulations also allowed for the creation o f new forestry
agencies. These include the National Consultative Council for Forestry Policy (Consejo
Nacional Consultivo de Politica Forestal - CONAFOR), the Supervising Organism for Timber
Forestry Resources (Organism0 Supervisor de 10s Recursos Forestales Maderables -
OSINFOR) and the Fund for the Promotion o f Forestry Development (Fondo de Promocidn del
Desarrollo Forestal - FONDEBOSQUE)21, among others. T h i s law also promoted the
establishment o f !Local Forests’ (500-ha forest plots for use by local communities). Based on
the new legal framework, and the promotion o f the central government towards decentralization,
INRENA has the capacity to grant forestry concessions to Regional Governments, which can
create ad hoc Commissions to participate in public biddings. Since 2003, the regional
governments o f Loreto, Ucayali and Madre de Dios have established ad hoc Commissions for
this purpose.

2.27 As part o f the implementation o f the new Forestry Legal Framework, the Government
developed the National Strategy against Illegal Logging. A Commission against illegal logging
(Comisidn Multisectorial de Lucha Contra la Tala Ilegal), presided over by the Minister o f
Agriculture, was created in 2002 to develop and implement the National Strategy, which
focused in the eradication o f the extraction and commercialization o f illegal forest products in
the Peruvian Amazon (Pulgar-Vidal 2006). Through a supreme decree in 2004, the National
Strategy and the “Committee” against illegal logging took effect under the mandate o f the PCM,
which has responsibility for implementing the national strategy. Among the achievements o f the

timber resources include: (1) Brazil nuts concessions, (2) afforestationheforestation concessions, (3) conservation
concessions, (4) protection concessions, and (5) ecotourism concessions.
2o The total area o f potential forest concessions amounts to 24.34 million ha, almost 15 million o f which are in
Loreto. By end o f 2004, over 7.5 million hectares o f forest had been awarded in the form o f forest concessions to 576
concessionaires for timber production in Madre de Dios, Ucayali, Huanuco, San Martin and Loreto.
*’ The Forest Development Promotion Fund (FONDEBOSQUE) is a public-private organization (presided by the
head o f INRENA) and funded primarily by the donor community. Its objective i s to promote investments in
sustainable and competitive forest enterprises and in environmentally responsible projects generating economic
opportunities and conservation o f biodiversity. As o f July 2005, i t s portfolio amounted to US$20.4 million (82.3%,
from international donors) on implementation o f forest concessions (1 5.2% o f portfolio), intermediate technology for
sustainable forest use (3.7%), forestry plantation development (27.4%), sustainable communal forestry management
(19.4%), and its own institutional creation and strengthening (49.6%).

16
Commission (which only became operational in March 2005) are these actions: (i)
strengthening MRENA's organizational and institutional capabilities in forest control and
supervision; (ii) designing and implementing a system for law enforcement, timber trackmg,
forest raids and timber trade transparency (including strengthening the chapter on infractions
and sanctions o f the under the Forestry Law); (iii)impounding wood from illegal logging
(particularly in Madre de Dios and Ucayali); (iv) promotion of, and support for, civil society
and local population participation in forest control and supervision; (v) setting up control posts
in Madre de Dios to control illegal logging; and (vi) designating an ad hoc Prosecutor for illegal
logging in Ucayali. As part o f the strategy, MRENA i s in the process o f establishing a digital
database to effectively review, evaluate and manage concessions nationwide.

2.28 The National Capacity Strengthening Program to Manage the Impact o f Climate
Change and Airborne Pollution (PROCLIM) recently recalculated the annual rate o f
deforestation as 149,632 ha per year. This rate i s significantly lower than previously assumed
(around 261,000 ha) and lower than in neighboring countries (D. Lee & J. Elgegren, 2005).
There are concerns that illegal logging and coca production are fueling a fast deforestation rate
in some regions o f the Amazon basin. The government o f the San Martin Regon, for instance,
recently declared environmental emergency due to the fast deforestation in the past years.
According to Research Institute o f the Peruvian Amazon (IIAP), from 5,125,003 ha o f forested
areas in the state o f San Martin, more than 1,300,000 have been already been cut down, at a rate
o f 40 ha per day. Furthermore, deforestation rates have historically been influenced not only by
sectoral policies, but also by the country's political and economic context. For instance,
heightened political violence, reductions in public investments and the elimination o f
agricultural loans seem to be associated with lower deforestation rates (Bernales, 2006).

2.29 Peru has made progress since 1975 in forestry related legislation. However, the
evolution o f forestry management has been characterized by a weak institutional framework
(both at ONERN and at INRENA) since it: (i) lacks resources, adequately trained staff, and
adequate and reliable forestry data; (ii)faces excessive bureaucracy, and (iii)
has been unable to
address simple but key issues (i.e., not working on weekends while illegal loggers do).

Reforestation Eflorts

2.30 The 2005 Supreme Decree No. 003-2005-AG declared deforestation to be a national
priority concern. This decree assigned responsibility for preparing the National Reforestation
Plan to INRENA and a number o f other institutions (the plan was approved in January 2006
through a supreme resolution). There have also been previous noteworthy efforts to promote
reforestation activities. Some o f the early reforestation programs date back to the 1960s
(supported through an IADB loan), which allowed the replanting o f 56,000 ha until the mid
1970's. Thereafter the Amazon Reforestation Royalty in the 1980's allowed for the reforestation
o f 100,000 ha. Since 1988, the National Watershed Management and Soil Conservation
Program (Programa Nacional de Manejo de Cuencas Hidrogrhjkas y Consewaci6n de Suelos -
PRONAMACHCS) has promoted numerous reforestation campaigns. The result o f these efforts
i s the growth o f forestry plantations from about 262,997 hectares in 1990 to 754,244 ha in 2003
(FA0 and INRENA, 2005). Most o f this reforestation was done in land designed for watershed
protection, but not for timber production. In addition, the Fujimori administration launched the
Sierra Verde Project (1995-1 996) which aimed at developing a reforestation strategy, including
the reforestation o f one million trees in different regions o f the country, including the dry
coastal areas.

2.31 Since i t s creation in 2003, one o f FONDEBOSQUE's key components has been the
promotion o f forestry plantations. FONDEBOSQUE i s currently supporting reforestation
activities in Cajamarca, San Martin, Ancash, Junin and Madre de Dios, including the
reforestation o f 30,000 ha in Villa Rica, Oxapampa and Pozuzo with native communities and
small and mid-size enterprises. Reforestation i s also part o f the debate in the current presidential

17
elections, as the APRA party has been promoting the Sierra Exportadora, which could
constitute a vehicle to reforest the deforested highlands and promote the country’s commercial
timber potential.

Conservation and Sustainable Use of Biological Diversity and Natural Protected


Areas

2.32 The Peruvian government’s protected areas policy started in 1961 when i t created the
country’s first national park (Cutervo NP). Since ONERN’s publication in 1974 o f the Policy
Guidelines for the Conservation o f Natural Resources in Peru, a strategy was established for the
“conservation o f soils, water, vegetation and animal life” (ONERN, 1974). Thereafter, the
Forestry L a w o f 1974 and i t s regulations for Conservation Units led to the establishment o f 7.5
million hectares, equivalent to 5.8% o f the national temtory, as natural protected areas. A major
breakthrough was the creation o f the National System for Areas Protected (Sistema Nacional de
Areas Naturales Protegidas por el Estado - SINANPE) in 1990 (constituted by conservation
units, national forests, boundary posts, and other categories o f public interest established by the
agrarian sector with conservation ends). Since that breakthrough, the system has grown to 61
protected areas comprising 17:66 million hectares, which i s 13.74% o f the country’s total area.

2.33 In 1997, Congress enacted the Law for the Conservation and Sustainable Use of
Biological Diversity and the Law for Natural Protected Areas (Law No. 26834). This Law
established the activities permitted in each category o f national protected areas and divides
those that are for direct and indirect use (National Parks, National Sanctuaries and Historical
Sanctuaries) where extractive activities are not permitted. In addition, the Natural Protected
Areas Law also regulates the buffer zones and establishes management committees to facilitate
the participation o f civil society in the comanagement o f protected areas. This legal
framework’s results have been positive and include recognizing biodiversity’s strategic value,
the development potential o f regulations on access to genetic resources and the importance o f
protecting traditional knowledge. Since the enactment o f the Natural Protected Areas Law, the
system assigned for conservation purposes has more than doubled in size22.

2.34 The policy framework for biodiversity conservation was reinforced by the
Environmental Code (1990), the signing o f the Convention on Biological Diversity (1992) and
the new National Constitution (1993). Ratifying the Convention on Biological Diversity in 1993
triggered several initiatives to meet its commitments to the international treaty including these
outcomes: (i) the passage o f the Conservation and Sustainable Use o f Biodiversity Law (1997);
(ii)the Protected Areas Law (1997); (iii) The National System Plan o f Protected Areas (1999);
(iv) the National Biodiversity Strategy (2001); and (v) the L a w for the National System o f
Environmental Management (2004). All these legal instruments clearly define the need for
participatory procedures in their application. Furthermore, the results o f these laws have led to
the recognition o f the strategic value o f biodiversity, the development potential o f regulations
on access to genetic resources and the importance o f the protection o f traditional knowledge.
Conservation o f biodiversity has thus become one o f the priority areas in the environmental
agenda.

2.35 By 1992, the Peruvian Trust Fund for Protected Areas (PROFONANPE) was
established as a private entity to obtain and promote financing for the conservation o f protected
areas. PROFONANPE was established with seed funds (US$5.2 million) from the Global
Environment Facility (GEF). Since its inception, PROFONANPE’s endowment fund has
increased to US$10 millionz3.PROFONANPE has also: (i) administered a number o f projects
with foreign donations (i.e., GEF-Participatory Management o f Protected Areas Project); (ii)

22Manuel Pulgar-Vidal (2006).


23Based on data provided by PROFONANPE (2005), and exchanges with Albert0 Paniagua, Executive Director o f
PROFONANPE, Manuel Pulgar-Vidal (SPDA) February 2006.

18
provided procurement management services for projects implemented by INRENA (i.e., GEF
Indigenous Management o f Protected Areas Project, the Natural Protected Areas Project by the
KfW); and (iii) coordinated bi-lateral nature swaps (i.e., governments o f Finland, Germany,
Canada and the EU). The resources for protected areas come from a number o f donations and
nature swaps primarily from the GEF, the governments o f Canada, Finland, Germany (GTZ and
KfW), Holland and the United States. In addition, grants fiom the McArthur and Moore
Foundations, and international NGOs (Conservation International, The Nature Conservancy and
WWF) have been managed by PROFONANPE24.The financial resources for the management
o f protected areas come from the following sources: (i) international agencies and bilateral
agreements (59.9%), NGOs (17.6%), government (12.5%) and multilateral agencies (10.4%)
(Pulgar-Vidal, 2006).

2.36 PROFONANPE has supported 18 programs and projects that have been carried out in
these areas: (i) the Cerros de Amotape, E o Abiseo, Huascarh, Yanachaga ChemillCn, Manu
and Bahuaja Sonene Natural Parks; (ii)the Machu Picchu and Manglares de Tumbes
sanctuaries; (iii) the Pacaya Samiria, Lachay, Paracas, Salinas, Aguada Blanca and Titicaca
reserves; (iv) the reserved zones o f Tumbes, Tambopata, Candamo and Man&; (v) the El
Angolo Boundary Post; and (vi) the Alto Mayo Protected Forest. PROFONANPE has provided
a crucial t e c h c a l and adrmnistrative support to the Intendancy o f Protected Areas (IANP) at
INRENA (established in 1993), which has the responsibility for the management o f the
SINANPE. The evolution o f the support and financing provided by PROFONANPE has been
more on a reaction to the specific demands o f the donor community, rather than being a
response to a specific demand or strategy developed with INRENA (Pulgar-Vidal, 2006).

2.37 The regulations for the Natural Resource Law, enacted in 2001, have significantly
advanced the conservation o f biodiversity. Based on this law, INRENA i s testing innovative
approaches to manage protected areas whereby local (indigenous) communities and NGOs can
participate in the comanagement o f selected areas. By 2005, the creation o f the f i r s t regional
reserve, the Cordillera Escalera in San Martin, demonstrated the potential o f decentralization o f
responsibilities for natural resources management.

2.38 Discussions have recently arisen among key stakeholders stemming from the proposal
by the National Association o f Mining, O i l and Energy (SNMPE) to modify the Protected Areas
Law so that National Parks and Sanctuaries, currently o f f l i m i t s to exploration and extraction,
can be cleared for exploitation o f mining and hydrocarbons. SNMPE proposes that in exchange,
companies pay a fee to the Protected Areas Fund (PROFONANPE).

2.39 Given IANP’s limited technical and administrative capacity for efficiently managing the
Natural Protected Areas System and i t s l o w capacity to spend resources fiom donors, proposals
are being discussed to reform the I A N P and establish it as a stand-alone national park service
institute in charge o f the protected areas and biodiversity issues (outside INRENA and the
Ministry o f Agriculture). I t i s believed that this autonomy would give the new institution the
flexibility to hire qualified staff (currently INRENA has limitations on i t s human resources) and
reduce the bureaucratic processes; these changes may turn it into a more efficient agency.

2.40 In 1995, a legislator proposed The National Environmental Fund (FONAM) as a means
to raise funds to finance the programs being developed under the environmental agenda with the
recent creation o f C O N A M (Pulgar-Vidal, 2006). Consequently, F O N A M was created in 1997
through Law No. 26793, with the purpose o f promoting public and private investment in
programs, projects and activities destined to improve environmental quality. F O N A M remained
for years without any resources until 2000 when, through a World Bank-GEF operation on

24All of the resources which PROFONANPE has either: (i) raised for the endowment find; (ii)administered as an
implementing agency; (iii)channeled through debt for nature swaps; (iv) channeled as a financial management
agency for INRENA (including those finds which have long closed or which are pending disbursement) add to
US$90.6million.

19
sustainable transport, received the necessary budget to begin operating. Since then, FONAM has
defined i t s areas o f action, which cover: (i)
energy; (ii)
transport; (iii)forestry, water and waste;
and (iv) mining environmental legacies. The first two areas are directly linked to climate
change. As for the latter, the recently approved Law for Environmental Legacies o f Mining
Activities (No. 28271) gives F O N A M the mandate for fundraising and financing for the
remediation and rehabilitation o f legacies. F O N A M has very limited technical capacity on
mining-related issues; thus, i t s main agenda has centered on issues related to climate change.

Pollution Control and Sectoral EnvironmentalManagement

2.41 Before 1990, activities to control water, air, noise and visual pollution were traditionally
managed in a fragmented manner by different organisms including the Ministry o f Agriculture
and the Ministry o f Health. To integrate these actions, Chapter XXII o f the C M A R N
incorporated n o m to regulate the evaluation, enforcement and monitoring o f natural resources
management. In 1991, through Legdative Act No. 757, the Framework Law for the Growth o f
Private Investment abolishes Chapter XXII o f the C M A R N and formalizes the administrative
distribution o f environmental management among line ministries or sectors. The Law
establishes that the ministries or enforcement agencies that correspond to the activities carried
out by the interested party are responsible for the environmental implications proposed. Since
1991, pollution-control activities have reflected a division o f environmental management
between line ministries (Box 2.1).

2.42 Between 1993 and 1994, the regulatory framework for the promotion o f investment and
a World Bank t e c h c a l assistance loan to the mining and energy sectors positioned the Ministry
o f Energy and Mines to lead the development o f sectoral environmental legslation by
establishing both environmental norms for the mining sector and the first sectoral environmental
units in the country. These norms gave priority to key environmental management prevention
and control tools which include: (i)environmental impact assessments (EIAs); (ii)
environmental management and adaptatiodcompliance programs (Programas de Adecuacidn y
Manejo Ambiental - PAMAS); and (iii)maximum permissible levels (Limites Mhimos
Pemzisibles - LMPs) were developed to control projects and industries in the mining and
energy, fishng and industrial sectors. The mining and energy sector’s initiative extended to the
fisheries and transport infrastructure sectors.

2.43 The legal framework let each environmental authority in the line ministries set
regulations for environmental assessment and pollution control. The regulations developed by
the different sectors vary in the requirements and on the capacity to carry out an adequate
enforcement. Since 1992, some ministries established environmental units for the
implementation o f environmental regulations and LMPs. The first units to be created were the
General Directions for Environmental Issues in Mining and Energy, in the Ministry o f Energy
and Mines. T h ~ swas followed by the National Environmental Directions for Fisheries and
Industry in the Ministry o f Production, the Direction for Social and Environmental Issues in the
Ministry for Transport and Communications; and the Environment Office in the Ministry o f
Housing, Construction and Sanitation. Likewise, Congress created by Law a Supervising
Organism for Energy Investment (Organism0 Supervisor de la Inversidn en Energia -
OSINERG) in 1996. OSINERG i s an autonomous entity under the PCM; it i s responsible for
overseeing compliance with technical and legal norms relating to environmental protection and
conservation in the electricity and hydrocarbon subsectors.

20
Box 2.1. The Roots of Sector-Based Environmental Management

There are multiple roots t o the current scheme o f sector-based environmental management. Even before
the 1991 modification o f the CMARN, which was credited w i t h legalizing the sectoral-based approach t o
environmental management, there were sector-based processes and incentives already in place. The Legal
Decree 757 (after the modification o f the C M A R N ) simply ratified a sector-based environmental
management approach that was already in existence.

One o f the roots for this approach is the decentralization and regionalization led during 1985-1990 by
Alan Garcia’s national government. During this period, many o f the government responsibilities, including
environmental ones, such as regulation o f mining operations, were delegated to regional governments.
This led to a number o f inefficiencies and overlaps among government agencies”. This decentralized
approach was opposed by the private sector, which claimed i t was inefficient. Among the reforms
established by the Fujimori administration in 1992, was the re-centralization o f many government
functions, including the empowerment o f certain sectors to carry out key enforcement functions (Pulgar-
Vidal, 20065).

Another source for this i s in CMARN’s first version, which established that the General Comptrollers
Office (Contraloria General de la Republica) would have specialized jurisdiction to supervise national
compliance with the code. This led t o an indirect environmental enforcement o f certain private sector
activities (particularly for the Southern Peru Mining Company, which was associated with environmental
pollution problems, during the 1980s). The comptroller’s direct involvement in environmental issues
resulted in the private sector’s strong rejection o f this approach, Under CONFIEP’s leadership. The private
sector successfully lobbied for a change in the enforcement methodology in favor o f one based by key
sectors, t o avoid this t y p e o f situations.

Finally, in the early 1990s, the Peruvian Government was determined t o promote investment and address
key sector crises faced at that time, particularly with regards to mining and energy. These crises included
the paralysis o f mining activities in rural areas due t o terrorism, the collapse o f state-owned mining
operations and the decline o f investment in public enterprises due t o their costly and inefficient operational
structure. Thus, by 1991 the Fujimori regime, sought the support from international agencies (including
the World Bank) to encourage investment in energy and mines, modernize the sector, and strengthen the
environmental sectoral approach. As a result, the World Bank assisted the Government o f Peru in i t s
efforts to: (a) establish enabling conditions t o attract mineral investments; (b) reform the role o f the
government from that o f owner to regulator; and (c) shift the responsibilities for operational activities to
’ the private sector through the implementation o f first generation reforms o f the mining sector carried out
under the Bank-financed Energy and Mining Technical Assistance Project (EMTAL). Initiated in 1993,
this project i s credited w i t h catalyzing many key regulatory and institutional changes that promoted
environmental practices in the mining sector led by the Ministry o f Energy and Mines. EMTAL also
helped shift sector policy toward a strategic vision for the mining sector. The changes produced by the
new regulations fostering private investment paved the way for today’s large-scale mining projects.

I t i s worth noting that these processes occurred when the central environmental agency was being
established with a weak structure and mandate and with the major coordinating role diffused among key
sectors. According to Manuel Pulgar-Vidal (2006), n o concrete model was followed for the sector-based
approach for environmental management. Depending on the resources, political will and commitment by
key sectors (such as mining and energy) the sector-based approach has led to concrete results. However, it
also resulted in an inherent conflict o f interest stemming from the fact that the line ministry i s supposed to
be both the key promoter and the environmental regulator o f a complex sector.

2.44 The main instruments for regulation used by the sectoral environmental units, EIAs and
PAMAs, differ in their scope and methodology. To homogenize EIA processes, Congress
approved the National Law for the Environmental Impact Assessment System (Sistema
Nacional de Evaluacidn de Impacto Ambiental - SEIA) in 2001. Regulations for the Law have
not been issued for a set o f complex issues. After the approval o f the Law, Congress set a 45-
day period for the approval o f the Regulations. C O N A M summoned the participation o f key

25 For instance, in 199&1991 the Ministry o f Energy and Mines and the Regional Mining Directorate in Piura had a
disagreement regarding environmental problems associated with the Turmalina Mine.

21
sectors to discuss and endorse the proposed Regulations for the SEIA, but omitted the
participation o f NGOs, who therefore later questioned the technical soundness o f the
regulations. Ths led to the establishment o f a special commission, which finished the proposed
regulation after 18 months and received the final endorsement from all key sectors, civil society
and the private sector (Pulgar-Vidal, 2006). After the Regulations were finally submitted in
2003, a parallel process began whereby members o f congress submitted proposals to modify the
SEIA L a d 6 . These dynamics distressed the Presidency o f the Council o f Ministers (PCM),
which felt it would be inappropriate to endorse the regulations o f a Law that different
constituencies were questioning.

2.45 Since then, the General Law o f the Environment has been approved. This new law calls
for additional modifications to the proposed regulations, including new roles for C O N A M and
the establishment o f Strategic Environmental Assessment. Therefore, the EIA law i s yet to be
appropriately regulated and i s currently being reviewed by the PCM, which i s proposing that the
law be endorsed by consensus among different constituencies, including the Afro-Peruvian,
Andean and Environmental Commissions in Congress.

2.46 The environmental management and adaptatiodcompliance program (PAMA) was


designed to address pollution-producing activities that existed prior to the relevant
environmental legislation. PAMAs are required for all activities but to date have been
principally applied to the priority sectors o f fishing, mining, energy and manufacturing.

2.47 Regarding LMPs, in 1996, the Ministry o f Energy and Mining determined a series o f
values for wastewater discharges in the hydrocarbon, mining, metallurgic and electricity sub-
sectors. In 2002, the Ministry o f Production established L M P s for effluents in four sub-sectors:
tanneries, paper, cement and beer. These limits refer to effluents in superficial water bodies and
the public sewage system. With the exception o f some regulated parameters in the mining and
tannery sectors, the regulated parameters refer to substances with negative aesthetic effects or to
the balance o f some ecosystems. Parameters such as biochemical oxygen demand (BOD),
Chemical Oxygen Demand (COD), iron, oil and greases, total suspended solids, Ph, or
Temperature, however, do not impair human health through water use for agnculture, cattle,
industrial or recreational ends. Mining and tanneries are the only sectors to regulate substances
with negative effects on human health, such as chromium for tanneries, lead in hydrocarbons,
and lead, copper, arsenic and cyanide in the mining sector.

2.48 Traditionally, air pollution problems have received little attention from environmental
authorities. However, in recent years, C O N A M has established technical committees (GESTAS)
responsible for the development o f ambient standards for air, water and solid waste. For
example, between 1965 and 2005, the main source o f air pollution in 110 was the smelter
operated by the Southern Peru Copper Corporation. In 2005, the smelter emitted an average o f
1400 TM o f SO2 by day. I t also emitted particulate matter containing arsenic and heavy metals
such as copper, cadmium and lead. In 1989 (prior to the creation o f PAMAs), Southern agreed
with the government (through a multisectoral committee) on investments to control pollution
emissions. Southern should be in compliance with mitigation measures by 2007.

2.49 The attention o f national authorities (particularly the Ministries o f Energy and Mines,
Industry and Transport), NGOs and the media focused on the approval o f EIAs and PAMAs o f
large investment projects, especially the hydrocarbon and mining sectors. Projects such as the
development o f the Camisea gas pipeline and the construction o f the Interoceanic Highway have
received considerable attention.

26 The proposed changes included calling for a different institutional arrangement in the final approval o f EIAs,
establishing different categories o f EIAs, and changes to the standard terms o f reference.

22
2.50 As o f December 2005, discussions were underway about the need to reform the
environmental enforcement and licensing framework, particularly among stakeholders who
question whether the current system o f granting environmental licenses and enforcement within
line ministries i s efficient, neutral and unbiased. Likewise, there was a notion that there i s an
imbedded conflict o f interest when the line ministry in charge o f promoting a specific economic
activity has the capacity to effectively regulate it on environmental grounds. These notions have
led to two proposals being debated at the lughest levels o f government: (i) the creation o f a
centralized environmental regulatory body (Procuraduiia Ambiental) to address the
enforcement o f all productive sectors (as proposed by the prime minister); or (ii) the
establishment o f independent environmental regulatory bodies for each sector, following the
model o f the already functioning OSINERG (as proposed by the Minister o f Energy and Mines).
The Ministry o f Justice has yet to assess these proposals (Castro, 2005).

2.51 Other discussions underway by December 2005 included proposals to update and
improve environmental regulations for the mining sector and environmental standards for water
resources. In 2005, 12 years after the issuance o f the first generation o f environmental
regulations for the sector, the M m i s t r y o f Energy and Mines was proposing that, the
Environmental Quality Standards (ECAs) and the LMPs be updated for 2006, and that the
environmental norms o f the sector be improved. The same claims were made by key
stakeholders regarding environmental standards, and there were ongoing efforts to clarify the
roles and responsibilities o f government agencies, including monitoring and enforcement o f
environmental standards.

EnvironmentalHealth, Waste Management and Reduction of Vulnerability to


Natural Disasters

2.52 Government support and commitment for environmental health management has been
mixed. In 1947, the first agency to address specific environmental health related aspects in the
workplace was established. The Instituto Nacional de Salud Ocupacional - I N S 0 (the National
Institute o f Occupational Health), was founded through a cooperative effort between the
Peruvian and the United States governments. The Institute’s initial purpose was to reduce the
high incidence o f silicosis and other occupational diseases that had been affecting Peruvian
mining workers for some time. A growing public awareness o f these problems influenced the
government’s decision to participate in this program and establish INSO. With time, the
Ministry o f Health widened i t s environmental health responsibilities to include pollution
control, food quality control and basic sanitation.

2.53 In 1985, the Health Ministry changed the name o f the National Council for
Environmental Health Protection (Consejo Nacional de Proteccidn del Medio Ambiente para la
Salud - CONAPMAS). T h i s was done to widen the scope o f the Council’s actions. I t s new
name i s the National Institute for Environmental Health Protection (Instituto Nacional de
Proteccidn del Medio Ambiente para la Salud - INAPMAS). Subsequently, Law No. 27657
phased out INAPMAS and established the National Center for Occupational Health and
Environmental Protection for Health (Centro Nacional de Salud Ocupacional y Proteccidn del
Ambientepara la Salud - CENSOPAS). Supreme Act No. 001-2003-SA in 2003 integrated the
Center with the National Health Institute in 2003.

2.54 Currently, the General Directorate for Environmental Health (DIGESA) at M I N S A i s


the only government institution with a regulatory mandate for environmental health-related
issues. DIGESA’s mandate includes: (i)operating national analytical laboratories; (ii)
establishing and enforcing human health safety norms and standards; and (iii) inspecting and
controlling environmental health matters related to water supply, sewage, solid and medical
waste, air quality, and hygiene conditions in public recreational areas. In spite o f its importance
in the national environmental agenda, DIGESA has faced numerous institutional and resource
challenges that have limited its overall technical and administrative capacity.

23
Air pollution

2.55 Since the mid nineteen-sixties and until the beginning o f the nineteen-nineties, the
Ministry o f Health had responsibilities related to environmental health that included air
pollution control. Within the monitoring and control o f air pollution, activities that should be
highlighted include the establishment, operation (between 1967 and 1990) and maintenance o f
an air quality-monitoring network in the main urban centers o f Peru (Red Panaire). The network
was dismantled at the end o f the eighties and was replaced by a newer network in Lima
(including a mobile station). The Ministry o f Health, however, was unsuccessful in establishing
the Environmental Quality Standards (ECAs). Thereafter, the maximum permissible levels for
mining operations were passed and included the L M P s for air quality parameters (including
lead, arsenic and PM) in Annex 3.

2.56 In 2001, regulations for National Environmental Standards for Air Quality were issued
(D.S. No. 074-2001-PCM). These regulations set standards for environmental quality in air,
sulfur dioxide (S02), particulate matter (PMlO), carbon monoxide (CO), nitrogen dioxide
(N02) and ozone (03). T o establish these standards, Technical Committees (Grupos de Estudio
Tkcnico Ambiental de la Calidad del Aire - GESTAs) were created. GESTAs were responsible
for formulating action plans to improve air quality in Arequipa, Chiclayo, Chimbote, Cusco,
Huancayo, 110, Iquitos, L a Oroya, Lima-Callao, Pisco, Piura, Trujillo and Cerro de Pasco. The
Clean Air Initiative (CAI) Management Committee was created in 1998 (with support from the
World Bank CAI) to assume the role o f the local Air Quality GESTA for Lima and Callao. An
Air Quality Action Plan was developed for Lima-Calla0 with support from the Clean Ar
Initiative, providing specific recommendations for emission reductions*’. In addition, Article
118 o f the General Law o f the Environment (which refers to air quality) establishes that specific
government agencies would adopt concrete measures (such as prevention, monitoring, and
environmental and epidemiologic control) to ensure improvements in air quality.

2.57 There have been recent efforts to launch an Inspection and Maintenance System in
Lima-Calla0 for the vehicle fleet. However, there have been legal problems involving the
concession and operating rights for this system between the municipality o f Lima, the
municipality o f Callao, the Ministry o f Transport and the private company that was awarded the
concession. Parallel discussions on alternatives to harmonize standards between Lima’s
metropolitan region and other regions are also underway.

2.58 In addition, there are ongoing discussions (and campaigns sponsored by C O N A M and
NGOs) to lower the content o f sulfur in diesel fuel before the proposed timetable established by
MEM in the hydrocarbons law (No. 26221). In March 2006, Law 28694, which regulates the
sulfur content o f diesel fuel, was published. Currently the law allows for more than 5,000 ppm
o f sulfur in diesel fuel and mandates that diesel 1 and diesel 2 sulfur levels be reduced to 50
ppm by 2010.

2.59 T h i s section o f Chapter Two covers only air pollution from fixed and mobile sources.
Indoor air pollution, which has been determined to be critical in Peru, i s not covered in this
chapter, given that there has been no legal or institutional setup to address this issue. However,
there are regulations for indoor pollution from construction materials such as asbestos.

Solid Waste Management

2.60 The General Law for Solid Wastes (LGRS) was enacted in 2000 as a complement to
CMARN’s general framework, and to existing environmental legislation. T h i s law mandates

*’ The legal framework for air quality i s perhaps one o f the most evolved in environmental legislation in Peru. Other
benchmarks include the approval o f an air quality monitoring protocol by DIGESA (2005) and the promotion o f the
L a w for bio-fuels (Pulgar-Vidal, 2006).

24
specific institutional responsibilities and provides a framework for managing and handling solid
wastes in an environmentally sound manner, minimizing waste volume, preventing potential
environmental risks, and guarantying the protection o f society’s health and wellbeing.

2.61 The LGRS regulates all o f the activities and processes related to solid waste
management throughout its lifecycle (fiom generation to final disposal). I t also regulates the
safe containment and transport requirements. The LGRS also provides a characterization o f
solid wastes according to the following: (i) domestic, (ii) commercial, (iii) public areas, (iv)
hospital, (v) construction, (vi) agricultural and (vii) those requiring special treatment or
installation. The key agencies with direct responsibility for solid wastes are: (a) CONAM; (b)
the Ministry o f Health (and DIGESA); (c) the Ministry o f Transport and Communications; and
(d) provincial and district municipalities (in charge o f waste o f domestic and commercial
origin).

2.62 A year after the approval o f the Law, C O N A M began i t s mandate (under article 2.5 o f
the LGRS) to produce the Methodological Guidelines for the Formulation o f Integrated Plans
for Environmental Management o f Solid Wastes (Guia Metodoldgica para la Formulacidn de
Planes Integrales de Gestidn Ambiental de Residuos Sdlidos - PIGARS). The PIGARS served
as a guiding tool to promote health and environmental improvements in towns and cities with
populations between 50,000 and 5,000,000 inhabitants through the sound coverage o f solid
waste management (Pulgar-Vidal, 2006). The PIGARS establishes long-term goals and
objectives (10 to 15 years), mid-range programs (3 to 5 years) and short-term action plans (2
years) for the efficient and sustainable management o f solid wastes. The PIGARS were
developed in a participatory manner with input fiom, and the expertise of, private and public
sectors linked to the solid waste management.

2.63 The PIGARS consequently served as the technical base for the development, four years
later, o f the National Plan o f Integrated Solid Waste Management (Plan Nacional de Gestidn
Integral de Residuos Sdlidos - PNGIRS). Approved through a national decree (No. 004-2005-
CONAM-CD), the PNGIRS was developed in 2005 by C O N A M in conformity to Law No.
27314 (General Law for Solid Waste). Since 2003, the Pan-American Health Organization
(OPS) actively participated in reviewing and modifylng the original draft o f the PNGIRS.

2.64 The key objective o f the National Plan i s to reduce the generation o f solid waste in the
country and control i t s associated sanitary and environmental risks. Specifically, the PNGIRS
has the following goals: (i) control and reduce the per-capita generation o f wastes; (ii) increase
the quality and coverage o f solid waste collection and disposal services; (iii)promote the
selective recollection o f wastes; (iv) reduce, recover, reutilize and recycle wastes; (v) assess the
economic value o f treating organic matter; and (vi) in a safe, sanitary and environmentally
sound manner, dispose o f wastes that do not have any specific use. In conformity with the
General Law for Solid Wastes, the PNGIRS supports a regional coverage for operations related
to the management and handling o f solid wastes from generation to final disposal. I t also has
specifications for handling wastes fiom different sources, and for transporting and disposing o f
toxic and dangerous wastes.

Pesticides and Persistent Organic Pollutants

2.65 Peru has more than 33 active norms and regulations for agricultural pesticides, and it
has signed all the key international conventions regarding the use and trade o f chemical
substances (Arica et al., 2005). The key conventions to which Peru i s a signatory, and for which
specific commitments have been assumed, include: (i) Earth Summit Action Plan (Rio de
Janeiro, 1992); (ii)
Sustainable Development Summit Decision Plan (Johannesburg, 2002); (iii)

25
Rotterdam Convention (1998); (iv) Basel Convention (1992); and (v) Stockholm Convention on
Persistent Organic Pollutants-POPS (2004)28.

2.66 Peru approved the Basel Convention in 1993 (Decree No. 26234) and assigned
responsibility for it to the Ministry o f Industry Tourism, Integration and Trade (currently the
Ministry o f Trade and Tourism). Peru approved the Rotterdam Convention in 1998. One o f the
first steps soon after signing this convention was to impose a prohibition on the use o f pesticides
developed with the active ingredient ethylic parathion, and imposing the restriction o f other
pesticides. The Rotterdam Convention only came into effect in 2004, and Peru ratified it in 2005
(through the decree D.S. 058-2005-RE). By the time Peru signed the Stockholm Convention in
2004, it had already prohibited the import, local production, distribution and trade o f most o f the
12 chemicals substances under the POPs convention.

2.67 A number o f key institutions and government agencies are responsible for regulating the
use, transport, trade and production o f pesticides: (i) SENASA (created as a decentralized
government agency o f the Ministry o f Apculture); (ii) The National Commission for Pesticides
(CONAP), created in 1993 under SENASA, i s the main advising agency regarding the registry
and control o f agricultural pesticides; (iii)
INRENA i s responsible for preparing environmental
technical reports on pesticides, as well as evaluating the environmental impacts and risks
analysis; and (iv) DIGESA has the responsibility o f supervising all aspects inherent to the risks
and impacts to human health, and monitoring pesticide residue in processed and industrial
meals. DIGESA i s responsible for producing toxicology reports, enforcement and regulating
activities and products (for domestic and industrial use) that may be harmful to human health.
The health sector, however, lacks specific norms to regulate in this area. By 1999, Peru carried
out a preliminary inventory o f POP pesticides considered ‘stale’, and by 2001, another survey
revealed that there had been a decrease in the stock o f certain POPs ( h c a et al., 2005).

Climate Change and Natural Disasters

2.68 Compared to Argentina, Brazil, Mexico and Venezuela, Peru’s overall contribution o f
green house gas (GHG) emissions to the atmosphere i s low. Peru contributes less than 0.3
percent o f overall GHG emissions (CONAM, 2003). Nonetheless, climate change has gradually
taken a prominent place within the national environmental agenda. In spite o f the severe impacts
o f el Niiio (especially in 1983 and 1998) Peru’s efforts in climate change have focused more on
the international arena (with a significant representation in different forums), on emissions o f
greenhouse gases and mitigation options, rather than on vulnerability and adaptation to climate
change (only until recently have taken a more prominent role). A large part o f CONAM’s
climate change agenda has been supported by external sources (i.e,, GEF, Holland and
Denmark).

2.69 In 1993, Resolution R.S. 359-RE established the creation o f the National Commission
on Climate Change (NCCC). The Commission’s objective i s to coordinate the application o f the
framework that was developed by the convention o f the United Nations on Climate Change, as
well as the Montreal Protocol (ozone depleting substances). Two years later, resolution R.S.
085-96-RE established that the presidency o f the NCCC would be chaired by CONAM, and
would be conformed by 13 public and non-public institutionsz9. Peru ratified the convention in
1993, and produced its First National Communication on March 2, 2001. The NCCC proposed
the National Strategy on Climate Change, which was approved by Supreme Decree in 2003.

” Peru has also adhered to Decision no. 436 of the Andean Community, and the International Code o f Conduct for
the Distribution and use o f Pesticides by FAO.
29 Among the institutions that conform the NCCC are: (i) association o f municipalities in Peru; (ii)
private sector
confederation (CONFIEP); (iii) National Council o f Science and Technology; (iv) Ministry o f Agriculture; (v)
Ministry o f Economy and Finance; (vi) Ministry o f Energy and Mines; (vii) Ministry of Production; (viii) Ministry o f
Foreign Affairs; (ix) Ministry o f Transport, Communications, and Housing; (x) representative o f NGOs; and (xi)
representation fiom Academia.

26
2.70 In 2002, a decree (No. 095-2002-PCM) gave CONAM the responsibility to implement
activities linked to the clean development mechanism under the framework o f the Kyoto
Protocol, but delegated this responsibility to the National Environmental Fund (FONAM),
which became the focal point for the prototype carbon fund in Peru.

2.71 A series o f technical studies have been developed that have contributed to Peru's
compliance with the requirements o f the Intergovernmental Panel o f Climate Change (IPCC),
and to elaboration o f its National Communication. These compliance activities are: (i)an
emissions inventory o f GHGs (through Danish financing); (ii) mitigation o f GHGs in Peru's the
energy, transport and forest sectors; (iii)
activities bearing on vulnerability to, and adaptation to,
climate change; and (iv) the climate change action plan 19942004. More recently, the French
Institute for Research and Development (IRD) has conducted the Andean Glacier Monitoring
Program to analyze global climate change in South America and i t s impacts in mountainous
regions3'.

2.72 In addition to the proposals being submitted for Clean Development Mechanism (CDM)
approval, Peru i s working on several climate change issues within the framework o f the
National Agreement. For instance, CONAM directs the PROCLIM project (Peruvian Climate
Change and Air Quality Program) supported with financing from Holland, which i s responsible
for implementing part o f the mandate o f the NCCC. The PROCLIM Project follows an
integrated approach to climate change: (i)mitigation o f GHGs; (ii) adaptation; and (iii)
information dissemination, and i s responsible for implementing the National Strategy on
Climate Change, and the National Program. PROCLIM's primary objective i s therefore to
strengthen the country's overall national capacity via public and private sector institutions, along
with over 70 partnering institutions throughout Peru's cities and regions. T h i s program aims to
enhance existing national climate change capacity.

2.73 In addition to PROCLIM, the National Institute for Civil Defense (Instituto Nacional de
Defensa Civil - INDECI) has traditionally focused i t s attention on response to natural disasters
(not just to those with causes related to climate change such as E l Niti'o), gving low priority to
preventive actions for vulnerability reduction. Since 2003, attempts have been made to correct
this bias though the preparation o f a National Plan for Prevention and Attention to Disasters
(Plan Nacional de Prevencidn y Atencibn de Desastres - PNPAD) approved in 2004. T h i s plan
contains guidelines, objectives, strateges and specific actions for disaster prevention. Within
the plan, MDECI implements the Sustainable Cities Program, which attempts to keep
population centers from being severely affected by intense natural or manmade phenomena. At
the national level, 103 urban centers have participated in the Program. O f those 103, 54 urban
centers have Land Use Plans and measures to mitigate disaster, and 42 municipalities have
approved studies for municipal ordaining and begun their implementation.

Towards a National System for Environmental Management

2.74 Gradually, over the past twenty years, Peru has established the National System for
Environmental Management (SNGA). In 1985, ONERN published the analytical work that set
the bases for the system: 'The Natural Resources o f Peru." This work defmed the situation and

30
Peru contains roughly 71% o f the globe's tropical glaciers. Since the early 1980s (PCC, 2004) Peruvian glaciers
have lost about 22% o f glacier surface, (500 Km2) equivalent to 7,000 million cubic meters o f water (about ten years
of water supply for Lima). Peru also has over 12,000 lakes and ponds that could be destabilized from glacier melt.
Furthermore, the combined impacts o f global warming, ENS0 (El Nilio Southern Oscillation), and extreme weather
events on mountain hydrology are diminishing the water flow used by populations downstream (ID2004). These
conditions are also likely to have devastating impacts on highland and associated downstream ecosystems, altering
the ecology and livelihoods o f millions o f people, whose GHG emissions are negligible. In addition, Peru's energy
sector could be affected, since 80% o f its energy generation comes from hydropower.

27
potential o f natural resources in topics that included climate, soils, water, forestry resources,
grasses, wildlife, water and biological resources, minerals and energy. The document proposed
guidelines for natural resource management, as well as for a new legal and institutional
framework.

2.75 After extensive consensus building among stakeholders, the C M A R N was approved in
1990. The Code incorporated in i t s Chapter XXII, the norms that regulated the National
Environmental System. The System was integrated by all the governmental institutions
dedicated to research, evaluation, command and control o f natural resources and the
environment, aiming to coordinate the implementation o f a national environmental policy and to
guarantee compliance to the functions assigned by Law to national, regional and local
governmental agencies. However, through legislative Act 757, Chapter XXII o f the C M A R N
was abolished in 1991 and environmental attributions were attributed to the line ministries,
thereby establishng that each sector constituted the environmental authority for the activities at
its charge. In spite o f this, an interest to coordinate environmental management activities
prevailed, and C O N A M was created in 1994. As the national environmental authority, C O N A M
i s a coordinating agency with a directive council integrated by representatives o f the national,
regional and local governments, primary, secondary and tertiary economic sectors, the academic
sector, NGOs and national professional associations. Box 2.2 below provides further details on
the CMARN.

2.76 The legal void o f an articulated environmental management system began to be filled
by the establishment o f the Structural Framework for Environmental Management (MEGA),
aiming to guarantee intersectoral coordination. Since the creation o f the MEGA, and to increase
local coordination between sectors at the regional level, C O N A M has established nine regional
environmental commissions (Comisiones Ambientales Regionales - CARS) that it manages
through their respective Regional Environmental Executive Secretariats. In general, C A R
participants include local governments, NGOs, and university and economic sector
representatives.

2.77 In addition, through MEGA, C O N A M has led the design o f the environmental agenda,
structuring four programmatic fronts: (i) the green front for biodiversity conservation; (ii)
the
brown front for sectoral environmental management; (iii) the blue front for water resources
management; and (iv) the golden front for responding to international conventions and legal
agreements. The recent refon& to the environmental legal framework contributed to the
redefinition o f CONAM’s responsibilities to focus on monitoring key environmental priorities
and actively participate in budget allocation based on environmental results.

2.78 C O N A M has achieved steady progress in the implementation o f an ambitious and


comprehensive agenda to address environmental issues. C O N A M has sought to promote
consensus building for environmental management and has made major contributions to
establishing a coordinating process for environmental management among the most important
national- and regional-level actors. Nevertheless, its lack o f real power to monitor and enforce
the application o f environmental laws and regulations i s a major handicap in the country’s
environmental institutional framework, particularly gven the imbedded conflict o f interest o f
enforcement carried out by sectoral units. C O N A M i s created within a framework already
favoring the sectoral approach to environmental management, and thus, i s weak in i t s initial
design and mandate. The initial drafts tried to adopt some o f the features o f the Chilean model
(CONAMA), which i s characterized for a strong regional approach. I t was assumed that the
president o f C O N A M would have a ministerial rank and with concrete functions, and that its
Board Council would be integrated by high-level officials with inherence in policymalung.
These suggestions were not included in the final proposal, which was presented for
consideration to the Environmental Director o f Foreign Affairs, and to the vice-minister o f
industry, which reflected the position o f the private sector (CONAM’s first elected president
had been active in the private sector). Thereafter Congress approved the proposed norm. Since

28
i t s inception, C O N A M has had a coordinating role and has taken a limited role in addressing
key environmental issues (Pulgar-Vidal, 2006). Limited resources and a weak capacity have
also led to the implementation o f instruments such as the MEGA. Thus, the nature o f i t s initial
design, limited resources, a strong sectoral based environmental approach, and ongoing
pressures from the private sector have, through time, characterized C O N A M as a frail agency
that has a low profile and lacks citizen participation (Pulgar-Vidal, 2006).

I Box 2.2. The National Code for Environment and Natural Resources - CMARN
The C M A R N has been one o f the key landmarks in the history o f environmental policy in Peru. C M A R N was
I
the result o f a process started in 1986 within Congress, which called for the creation o f a Ministry o f
Environment. Since there was a lack o f environmental legislation, it was opted instead t o first establish an
environmental code. As a result, the C M A R N became one o f the key instruments that set in motion many the
dynamics and overall structure o f the current environmental policy framework in Peru. Many o f the critics to
the code also proposed different alternatives, including a sectoral-based environmental management approach,
which was later adopted.
One o f the key elements o f the C M A R N was the introduction o f environmental impact assessments (EIA) and
its application, which previously did not exist in Peru. Likewise, the C M A R N became the first norm to
recognize and legitimize the rights o f citizens to have access t o justice on environmental grounds, without
having t o proof direct environmental impact (many years later the code for civil procedures and the L a w o f the
General Administrative Procedures recognized this right) (Pulgar-Vidal, 2006).
T h e modification t o the C M A R N in 1991 through Legal Decree No757 illustrates the complexities that have
characterized the legislative and political processes through which Peru has gradually advanced towards the
adoption o f a comprehensive legal framework for environmental management (Bernales, 2006). The
modification resulted from an initiative by the Presidency o f the Environmental Commission in Congress,
which wanted t o b e known for passing a “significant” environmental norm in Peru. Consequently, i t proposed
the creation o f a review committee to which would modify the Code as a means to revamping it (Pulgar-Vidal,
2006). This proposal faced many critics and resistance from groups claiming that it could risk the existence o f
the norm and could represent a serious setback for environmental legislation. Considered at the time an
innocuous law (since it only proposed the creation o f a review committee), the law was swiftly approved b y
congress. Once approved, technical groups joined the review process among other things, to prevent that key
concepts and principles be taken out.

2.79 In 2004, Congress approved the Framework Law for the SNGA, w h c h establishes the
integration o f all sectoral entities to the System, under CONAM’s leadership. T h i s Law
reinforces inter-institutional coordination. Nonetheless, one o f CONAM’s biggest challenges i s
to resolve the overlapping and/or ambiguous environmental mandates between Peru’s public
institutions, and to promote further inter-institutional coordination. Institutional ambiguity
associated with overlapping jurisdiction often results in delays in addressing key issues with
environmental and social costs. Lack o f coordination among agencies sends mixed messages to
sectors and hinders the adoption o f improvements in efficiency’.

Role of the Ministry of Economy and Finance

2.80 The Ministry o f Economy and Finance’s (MEF) key role has been to provide the
planning for, and budgetary allocations to, key environmental agencies (CONAM, INRENA
and DIGESA) for their respective operations and programs. In addition, MEF has gradually
contributed to a number o f environmentally related initiatives, such as (i)
providing matching
funds from the national system if public investment (SNIP) to FONDEBOSQUE’s reforestation
programs; and (ii) endorsed the debt for nature swaps for which PROFONANPE has served as
the implementing agency. Furthermore, the Directorate for Environmental and Macro-
productive Studies has been established within MEF (under the General Directorate o f

31
For example, in 1998 a decree b y initiative o f the Navy required all fishmeal plants discharging into the sea to
install sub-marine outfall pipes b y the end o f the year. T h i s measure was contrary to MIPE policy, which was
attempting to discourage the use o f submarine outfall pipes, as they are expensive, result in lost revenue (in the form
o f raw material), and most importantly does not prevent waste (US AID, 2000).

29
Economic and Social affairs). T h i s Directorate’s mandate i s to (i)analyze and provide follow-up
to the productive sectors in line with the country’s national development strategies; (ii) assess
and monitor environmental issues in the country, in accordance with the nation’s environmental
policy and productive potential; (iii) participate in formulating, implementing and evaluating o f
the national economic program; (iv) identify and assess a series o f key indicators o f the national
economy; and (v) prepare research studies and analytical reports on key productive and/or
environmental issues related to the economy to serve as inputs to improve the government’s
national However, this unit has limited influence over key sectoral policies and
overall decisions regarding budget allocation.

2.81 Total public spending approved by MEFs for the environmental sector decreased by
24% from US$170 million in 1999 to US$147 million in 2003, which i s 0.14 percent o f GDP
(Abugattas, 2005). This amount reflects that environmental issues have low priority in the
allocation o f resources in the country. Furthermore, Peru i s one o f the few countries in the
region that has not requested loans from multilateral agencies for the development o f specific
projects or programs to improve the country’s environmental conditions. Rather, it has relied on
grants from donor agencies, foundations, NGOs and bilateral agreements. Preliminary
assessment o f public and private environmental expenditures and public investment done in
2004 illustrate that investment and operational expenditures equaled 0.25% o f GDP in 2003
(Abugattas, 2005). While a cost-efficiency assessment needs to be made o f the measures that
would reduce environmental degradation, the amount required to address the key priority issues
i s greater than current government expenditures. In addition, a slightly larger share o f
environmental spending goes for operational expenses rather than investments, indicating that
issues needing to be dealt with are most likely not being addressed

Box 2.3. Peru’s NationalEnvironmental System (SNGA)


The 2004 Law o f SNGA empowered C O N A M A to coordinate environmental management
among a range o f public and private stakeholders. The Law defines a set o f orientations,
norms, activities, resources, programs and institutions that allow the implementation o f
general environmental principles around a model o f sustainable development.

Territorial Levels (Art. 16)

National Regional Local

n I ] Council o f Ministers I P C M I
2
1
-
I1 CONAM
v1
Regional Local
National and Strategic Environmen- Environmen-

-3
e,
> I11
tal Manage- tal Manage-
Technical Groups
d ment ment
6
* Ministries, OPDs, Regional Systems Systems
Governments, Local
CL Governments, Private Sector,
Civil Society

Source: CONAM (2005)

2.82 In October 2005, the General Law o f the Environment (Ley General del Ambiente -
LGA), was issued by Congress. The Law consolidates C O N A M as the leading entity o f the
SNGA (Box 2.3). The SNGA Law assigns environmental control functions and the administration
o f the system to CONAM. The LGA opens the possibility to establish environmental priorities at
the national and regional level. A review o f the history o f environmental management in Peru

32 MEF’s website: http://www.mef.gob.pe/propuesta/DGAES/presen~ciondgaes.php

30
reveals little consideration towards priorities across environmental sectors (Pulgar-Vidal, 2006;
CONAM, 2005). Although plans do exist for key areas within the environment sector (such as
forestry, water, natural protected areas), no systematic periodic planning exercise exists to
establish priorities across environmental programs and sub-sectors such as air pollution, disaster
risk management, and water sanitation. T h i s gap has been highlighted in evaluations o f planning
in the SNGA (Pulgar-Vidal, 2006).

31
Box 2.4. National Environmental Agenda 2004-2007

Structural Green Golden


Brown Front Blue F r o n t
Objectives Front Front
Environmental Implement
Policy: the FTA: defend
Annual E C A Education:
approved National national
and L M P national
national Bio- biodiversity
programs priority
environmental diversity interest
policy Strategy
Normative Strengthen
Integrated Integration
Trans- Framework public Promotion o f
management o f of
sectoral a new CMARN, manage- environmen-
dangerous and Commerce
laws and trans- ment in the tal citizen
chemical and
sectoral managing stewardship
substances Environment
regulations OfRRNN
Environmental Capacity
Environmental
Institutional building for Environmen-
decontamina-
Development: investiga- tal services
tion
implementation tions
and
strengthening o f
the National
National System for
Level Environmental Application
National Regulation o f Promotion o f
Management and of
Reforesta- solid waste Sustainable
o f the mechanisms
tion Plan management Tourism
environmental for the access
units at national, of
regional and information
local government and
levels environmen-
Sectoral
Promote tal
aquaculture Promotion o f participation
Decentralization Promotion of
and the P M L and
of bio-
adequate support for the
Environmental commerce
fishing PYME
Management:
practices
push for the
Use and
decentralization
protection Improve the Develop-
process in
o f native conditions for ment o f
environmental
knowledge housing and concessions
matters
and urban living for tourism
technology
Instruments f o r Regional Regional Regional and
Environmental biodiversity climate change local
Management: strategies strategies Regional
promotion of
Regional complete and assimilation
environmen-
and strengthen the of
tal products,
Local instruments for Articulation Municipal educational
eco-
Levels environmental o f OTA and management o f environmen-
commerce
management at conservation solid waste tal projects
and
all levels o f
ecotourism
government

2.83 Since 2004, the national program for decentralization o f responsibilities


contemplates in i t s plan the transference o f functions related t o natural resources and
environmental protection. Actions to be decentralized include sectors such as
agriculture, tourism, and energy and mining. T h e Ministry o f Agriculture began the
transference t o the regions o f processes o f monitoring and control to guarantee the

32
sustainable use o f natural resources and t o emit permits, authorizations and forestry
concessions, as w e l l as the control o f the compliance to national forestry policy. The
Ministry o f Commerce and Tourism contemplates the transfer o f functions regarding the
verification o f compliance to environmental norms and regulations and natural resource
preservation in tourism. The Ministry o f Energy and Mines has begun to transfer to
regional governments the PAMAs’ approval and supervision functions, along with the
environmental assessment for small-scale mining activities.

Box 2.5. The General Law of the Environment- LGA


The General L a w o f the Environment (Law No. 2861 1) approved in October 2005 builds on the consensus
reached by different sectors, civil society and the private sector. The LGA, which to an extent replaces the
CMARN, could strengthen trans-sectoral coordination and the regional approach to environmental
management. I t incorporates a series o f new characteristics and challenges and, t o a large extent, will depend
on CONAM’s capacity for its final regulation and adequate implementation. T h e LGA had a number o f
controversial issues for the private sector which were extensively debated, including the precautionary
principle (article VI); reparation o f damage and the burden o f civil responsibility (Article 147); and
environmental quality standards and maximum permissible levels (articles 3 1-33).
Among the new features the LGA includes a fiscal framework to promote sound and responsible environmental
practices and behavior @reviously unknown in Peru); Likewise i t establishes C O N A M as the leading
administrator in the EIA process, ensuring a more active role and participation, decreasing the sectoral role in
the EIA process. Furthermore, there are clearer responsibilities concerning environmental emergencies and for
the establishment of transitory environmental quality norms o f special character in critical environmental areas.
This would allow C O N A M to have presence and a mandate in addressing specific environmental problems,
which previously did not get involved (i.e., air pollution in L a Oroya, noise levels in Iquitos, water pollution o f
key watersheds such as the Rimac). Thus, among the key challenges include strengthening the role o f CONAN,
its new role in the enforcement process, and the establishment o f an autonomous enforcement agency. There
are a number o f pending issues and challenges concerning the General L a w o f the Environment and its
regulations, including: (a) the overall definition o f key responsibilities among government agencies (including
MEF); (b) harmonizing the system o f incentives and sanctions (fines); (c) defining the methodologies and
scope for environmental zoning (ordenamiento territorial); (d) defining environmental spending, from the
agreement that C O N A M and MEF would carry out the yearly accountability); and, (e) empowering C O N A M
with enforcement capabilities, an issue that has been linked t o the discussion on the creation o f an enforcement
agency.

Conclusions and Outlook

2.84 From 1965 to 2005, Peru’s environmental management framework has gradually
evolved. Among the significant milestones reached during 1950-1990 were the establishment o f
OERN and DIGESA, and the issuance o f the Code for Environment and Natural Resources in
1990, which remains Peru’s most important regulation for environmental management. While
Peru has greatly improved i t s environmental management capacity since the Code was
approved, there are still challenges to be addressed.

2.85 Peru has advanced significantly in the sustainable use o f natural resources. INRENA
has been successful in promoting the conservation agenda, as evidenced by advances such as the
titling o f lands belonging to indigenous peoples and the establishment o f protected areas.
Furthermore, historical events were influential in focusing INRENA’s attention on major
environmental priority areas: water and forest resources management, and conservation o f
biodiversity. Nonetheless, INRENA has been characterized by a weak institutional framework,
since it (i) has lacked resources, adequately trained staff, and adequate data (i.e., on forestry and
the status o f biodiversity); (ii)has faced excessive bureaucracy, and (iii) has been unable to
address simple but key issues (e.g., not working on weekends, while illegal loggers do). These
weaknesses have hampered INRENA’s capacity to adequately assess the impacts o f agtlcultural
investments on the environment and natural resources (Bernales, 2006).

33
2.86 Water resource management i s o f special importance to Peru due to the critical role
water plays in economic development. Responsibilities for natural resource management have
been assigned to INRENA’s Intendancy for Water Resources. A national strategy for water
resources has been established, and efforts are underway for i t s implementation.
Decentralization efforts have been highly effective, and current discussions focus on the
possible creation o f a national water authority to regulate water quality and quantity.

2.87 Natural resource management has been particularly effective in the forestry sector,
where deforestation rates have been kept lower than in neighboring countries. However, this
should not lead to the conclusion that deforestation i s under control and does not threaten
biodiversity and fragile ecosystems. Current discussions among key stakeholders include
questions as to whether the current framework and methodology for forestry concessions are
adequate and realistic, since serious errors have been encountered in over 90 percent o f the
concessions granted in the country.

2.88 The evolution o f the National Protected Areas System has been successful in that close
to 14 percent o f the national territory has received conservation status. Nonetheless, the
development o f financial strategy has not been matched by increased adrmnistrative and
operational capabilities. In addition, a key challenge continues to be providing adequate staff,
equipment and resources to the protected areas for their efficient use and management.
Difficulties impeding an adequate and timely process for using available resources have led to
proposals that the management o f protected areas be decentralized by giving that task to an
autonomous agency.

2.89 There are still significant challenges for pollution control and sectoral environmental
management. The existing system’s efficiency, neutrality and the possibility o f bias have been
repeatedly questioned, and two alternative proposals are under discussion: (i)the creation o f an
independent regulatory body; and (ii)the establishment o f independent environmental
regulatory bodies within line ministries, following the model o f the OSINERG.

2.90 There i s an active interest in, and consensus for, updating and improving sectoral
environmental regulations, particularly in key economic sectors such as mining, transport,
housing and tourism. The Regulations for the Environmental Impact Assessment (EIA) Law
have been prepared and are under discussion, and there i s a significant need for their issuance.
Regulatory gaps relating to E M have led to highly publicized controversies about large
investment projects. These include the extension o f the P A M A for the Doe Run, adequate
enforcement and compliance for the Camisea gas pipeline, and the upcoming construction o f the
Interoceanic Highway.

2.91 A number o f issues concerning the General Law o f the Environment and i t s regulations
are pending: (i)the overall definition o f key responsibilities among government agencies
(including MEF); (ii) harmonizing the system o f incentives and sanctions (fines); (iii)refining
the methodologies and scope for environmental zoning (ordenamiento territorial); (iv) defining
environmental spending (from the agreement that C O N A M and MEF would carry out the yearly
accountability process); and (v) empowering C O N A M with enforcement capabilities, an issue
that has been linked to the discussions about creating an enforcement agency.

2.92 Environmental management in Peru has continued to evolve rapidly, especially during
2005, when national discussions hghlighted environmental issues ranging from proposed
reforms to the institutional and legal structure, to the aforementioned potential impacts o f large
investment projects.’ In light o f the 2006 presidential elections, many o f these topics are gaining
relevance in the political debate.

34
CHAPTER 3

ALIGNING ENVIRONMENTAL PRIORITIES WITH THE


NEEDS OF THE MOST VULNERABLE

I n Peru, the costs of environmental damages are estimated at 8.2 billion soles per year,
equivalent to 3.9 percent of GDP in 2003. The highest cost results from outdoor air
pollution and lead exposure in urban areas, and from inadequate water supply,
sanitation and hygiene. Additional significant causes are natural disasters, indoor air
pollution and agricultural soil degradation. Distributive analysis of environmental
health impacts indicates that outdoor air pollution’s harmful effects in Lima-Calla0 are
75 percent higher for the poor than for the non-poor, even in a conservative base-case
scenario. The health impacts on the poor resulting from inadequate water supply,
sanitation and hygiene are nearly 3 times higher than on the non-poor. I n relation to
income, the impacts are more than 10 times higher for the poor. Data are not available
to estimate the relative impacts of indoor air pollution on the poor vs. the non-poor;
however, most of the impacts occur among the poor because their use of solidjkels is
far greater than by the non-poor. The impacts on all environmental health categories-
i.e., urban air pollution, water, sanitation and hygiene, and indoor air pollution per
1000 people-are nearly 20 percent higher for the poor than for the non-poor. Relative
to income, the impacts on the poor are 4.5 times higher than on the n ~ n - p o o r . ~ ~

Introduction

3.1 Environmental pollution, degradation o f natural resources, natural disasters and


inadequate environmental services (e.g., inadequate water supply and sanitation) impose costs
on society in the form o f ill health, lost income, and increased poverty and vulnerability. In
Peru, the costs o f these environmental damages are estimated at 8.2 billion soles per year,
equivalent to 3.9 percent o f GDP in 2003 (Larsen and Strukova, 2006a). The highest cost results
from outdoor air pollution and lead (Pb) exposure in urban areas, and fiom inadequate water
supply, sanitation and hygiene. Additional causes are natural disasters, indoor air pollution and
agricultural soil degradation (Figure 3.1). The cost o f deforestation i s estimated to be somewhat
less than for soil degradation, and the cost o f inadequate household solid waste collection i s
minor compared to the former costs. The cost o f lead pollution i s declining with the phase-out
o f leaded gasoline.34

3.2 The costs o f environmental damage are distributed unevenly across the population.
Figure 3.2 presents estimated costs per capita based on population exposure to environmental
health risks. The estimated cost o f outdoor air pollution (PM) and lead exposure i s for cities
with more than 100 thousand inhabitant^.^^ The cost per person in these cities i s estimated at

33 B j o m Larsen and Ernest0 Sanchez-Triana prepared this chapter. This chapter draws heavily f i o m background
documents prepared by Bjom Larsen and Elena Strukova (2005b, 2006a).
34
Costs o f rangeland degradation, coastal degradation, municipal waste disposal, and inadequate industrial and
hospital waste management are not estimated due to data limitations. Other than for rangeland degradation, it i s
unlikely that the costs o f any o f these categories are anywhere close to the costs o f inadequate water supply,
sanitation and hygiene; outdoor air pollution; natural disasters; indoor air pollution o r agricultural soil degradation.
However, the cost o f rangeland degradation could b e significant. Rangelands occupy 18 million hectares in Peru,
which i s more than 4 times the area o f cultivated land. For fisheries, only an estimate o f the excess fishing fleet i s
plovided due to uncertainties about fish stock dynamics.
The cost o f lead exposure is from all sources including leaded gasoline, industry, water soil, paint and food.

35
230 soles per year. Indoor air pollution from solid fuels i s predominantly a burden on the rural
population, with an estimated cost o f nearly 100 soles per person per year. In contrast, hygene
practices, and to some extent inadequate potable water supply and sanitation, affect most o f the
population, causing unnecessary diarrheal illness and child mortality, with an annual cost o f
nearly 85 soles per person.

Figure 3.1. Annual Costs of Environmental Damage (Billion Soles)

1 ,
3.0 I

2.5

2.0

1.5

1.o

0.5

0.0
Outdoor air Water supply, Natural disasters Indoor air pollution Soil degradation Deforestation MunicipalWaste
pollution (PM) and Sanitation and collection
lead (m) hygiene
exposure

Source: Larsen and Strukova (2006a)

3.3 Natural disasters affect large areas o f Peru, while agricultural soil degradation i s
concentrated in the Sierra (erosion) and the Costa (salinity) regions. Data are not available to
provide an estimate o f costs per person, but the average annual cost o f agricultural soil salinity
and erosion i s estimated at 1200-1300 soles per hectare affected, representing a substantial
income loss for the agricultural population.

Figure 3.2. Estimated Annual Costs of Environmental Damage per Capita (Soles)

250 1

200

150

100

50

0
Outdoor air pollution (PM) Indoor air pollution Water supply, sanitation and
and lead (Po) exposure hygiene

Source: Larsen and Strukova (2006a)

3.4 Table 3.1 presents low, high and mean estimates o f annual costs. T h i s reflects
uncertainties in estimated health effects, valuation o f health effects, yield losses from soil
degradation, cost o f damages from natural disasters, and how households value solid waste

36
collection services. The range in the costs associated with deforestation reflects estimates o f lost
future forest benefits at a 3-10 percent annual discount rate.

Table 3.1. Annual Costs of EnvironmentalDamage (Billion Soles)

I I Billion Soles per Year I


Low Mean High
Estimate Estimate Estimate
Environmental Categories
Outdoor air pollution (PM) and lead (Pb) exposure 1.71 2.81 3.91
Water SUDD~V.sanitation and hvniene 1.79 2.26 2.73
I Natural disasters I 1.05 1 1.07 I 1.10 I
Indoor air pollution 0.55 0.78 1.02
Soil degradation 0.54 0.73 0.92
Deforestation 0.28 0.44 0.59
I Municipal waste collection I 0.09 I 0.10 I 0.11 I
I TOTAL ANNUAL COST I 6.01 1 8.19 I 10.38 I
*Erosion and salinity o f cultivated land (not including pasturehangeland)
Source: Larsen and Strukova (2006a)

Outdoor Air Pollution and Lead Exposure

3.5 Particulate matter (PM) i s the urban air pollutant most often found to have the strongest
association with health effects. T h l s association with health effects holds especially for
particulates o f less than 10 microns in diameter (PM10) or smaller particulates such as PM2.5.
The mean annual cost o f P M pollution in Peru i s estimated at 1.8 billion soles or nearly 0.9
percent o f GDP in 2003. About 62 percent o f the cost i s from mortality, and 38 percent from
morbidity (Figure 3.3). Measured in lost disability adjusted life years (DALYs), mortality
represents 44 percent and morbidity 56 percent.36 These estimated costs are based on the
number o f people living in cities with a population o f more than 100 thousand, ambient P M
concentration levels in these cities, and dose-response coefficients from worldwide studies
linking P M concentrations to health effect^.^'

3.6 Nearly 75 percent o f the Peruvian population lives in urban areas, with more than 12
million people in cities with a population over 100 thousand. P M monitoring i s only available in
Lima-Callao, an urban area with a population o f more than 7.5 million (Table 3.2). Table 3.3
presents population figures for Arequipa, Trujillo and other cities with more than 100 thousand
inhabitants that lack P M monitoring data. These cities have a total population o f 4.5 million.
Consequently, excluding them from estimating the health impacts o f urban air pollution would
be a serious omission. Therefore, annual average PMlO levels were assigned to these cities
based on World Bank modeling o f PMlO concentrati~ns.~~

36
DALYs combine both mortality and morbidity and is calculated from years lost to premature mortality, duration o f
illness, and severity o f illness (using seventy weights).
37 Peruvian studies o f the relationship between ambient PM concentrations and health effects are not available.
38
www.worldbank.orghipr/Atrium/mapping.html.url.

37
Figure 3.3. Annual Costs of Urban Air Pollution (Billion Soles)

1.0 -
0.8 -
0.6 -
0.4 -

0.2 -
0.0 +
I~~
Cardiopulmonary and lung cancer mrtaiity Respiratory morbidity
I
Source: Larsen and Strukova (2006a)

Table 3.2. Population and P M Concentrations in Lima-Calla0

Key parameters Este Sur Norte Centro Callao


Population (millions) 2002 0.97 1.60 2.64 1.57 0.79
Adult population >= 15 y r s (000) 0.69 1.14 1.90 1.17 0.57
Child population <=I4 yrs (000) 0.28 0.46 0.74 0.40 0.22
Annual average PM2.5 (ug/m3) 200 1-2004 45 39 57 84 31
Estimated annual average PMlO (ug/m3) * 91 82 112 133 53

Table 3.3. Population and Estimated Data for Cities without P M MonitoringData

Key parameters Arequipa Trujillo Other cities


Total population (millions) 2002 0.68 0.62 3.24
Adult population >= 15 y r s (000) 0.45 0.41 2.13
Child population <=14 y r s (000) 0.23 0.21 1.11
Estimated annual average PMlO (ug/m3) 96 55 63
Estimated annual average PM2.5 (uglm3) 38 22 25

3.7 Dose-response coefficients are presented in Table 3.4. The Pope et al. (2002) study o f
more than one million individuals over a period o f 16 years in the United States i s one o f the
best available sources o f evidence of the relationship between ambient particulate pollution
(PM2.5) and premature mortality. The dose-response coefficients from this study were applied
by WHO in the World Health Report 2002, which provided a global estimate o f the health
effects o f environmental risk factors.

3.8 Morbidity effects assessed in most worldwide studies are based on PM10. Dose-
response coefficients from Ostro (1994) and Abbey et al. (1995) have been applied for
morbidity effects. Ostro (1994) reflects a review o f worldwide studies, and Abbey et al, (1995)
provide estimates o f chronic bronchitis associated with particulates (PM10).

38
Table 3.4. Urban Air Pollution Dose-Response Coefficients
Per 1 ug/m3.
Dose-Response Annual Average
Annual Health Effect Ambient
Coefficient
Concentration of:
Mortality (% change in cardiopulmonary and lung cancer 0.8% PM2.5
mortality in population over 30 years o f age)
Chronic bronchitis (% change in annual incidence) 0.9% PMlO
Respiratory hospital admissions (per 100,000 population) 1.2 PMlO
Emergency room visits (per 100,000 population) 24 PMlO
Restricted activity days (per 100,000 adults) 5,750 PMlO
Lower-respiratory illness in children (per 100,000 children) I 169 PMlO
Respiratory symptoms (per 100,000 adults) 18,300 PMlO

3.9 Estimated health effects are presented in Table 3.5. An estimated 3900 individuals in
Peru die prematurely each year from air pollution. About 2900 o f these deaths occur in Lima-
Callao. The estimated number o f new cases o f chronic bronchitis exceeds 3800, while hospital
adrmssions are estimated at more than 12 thousand and emergency room or outpatient hospital
visits at more than 250 thousand. Restricted activity days are estimated at 5 days per year per
adult, and one in seven children i s estimated to get lower-respiratory illness each year.
Respiratory symptoms - such as a mild cough or throat irritation - are estimated at 16 cases per
adult per year. In total, more than 65 thousand DALYs are lost each year.

3.10 Estimated costs o f health effects are presented in Table 3.6, totaling 0.9-2.7 billion
soles per year, with a mean estimate o f 1.8 billion. The low estimate for mortality i s based on
the human capital approach (HCA), which i s the present value o f future income lost to
premature death. T h i s valuation method was commonly used in the past, but has increasingly
been replaced by the value o f statistical l i f e (VSL). VSL i s a measure o f people’s willingness to
pay for a reduction in their risk o f death. In the absence o f VSL studies in Peru, a transfer
approach from studies o f VSL in the United States and Europe provides a high cost estimate o f
mortality o f 2 billion soles per year.39The cost o f morbidity i s based on the cost o f health care
services, medicines, lost workdays including household work, and time spent caring for ill
family members.

39 This i s based on a VSL in United States and Europe o f US $ 2 million (Mrozek and Taylor 2002), translating to
520 thousand soles in Peru by adjusting for the income differentialbetween these countries and Peru using an income
elasticity o f 1.0 at market GDP per capita. It should be noted that even this approach i s considered conservative by
many economists, who prefers to use PPP based GDP or a lower income elasticity.

39
Health Endpoints Total Cases (000) Total DALYs
Premature mortality 3.9 29,253
Chronic bronchitis 3.8 8,386
Hospital admissions 12.8 205
Emergency room visits/Outpatienthospital visits 252.0 1,133
Restricted activity days 43,350.0 13,004
Lower-respiratoryillness in children 533.0 3,467
Respiratory symptoms 137,957.0 10,347
I
TOTAL , I
65.796 J
Source: Larsen and Strukova (2006a)

Table 3.6. Estimated Annual Costs of Health Impacts (Billion Soles)


Percent o f Total
Health Categories Total Annual Cost*
Mean Cost
Mortality 0.23-2.02 62%
Morbidity
Chronic bronchitis 0.08 4%
I Hospital admissions I 0.03 I 2Yo I
Emergency room visitdoutpatient hospital visits 0.06 3%
Restricted activity days (adults) 0.35 19%
Lower-respiratorvillness in children 0.09 ~
5%
Respiratory symptoms (adults) 0.08 4%
Total Cost o f Morbidity 0.70 38%
TOTAL COST (Mortality and Morbidity) 0.93-2.72 100%

3.1 1 The annual cost o f lead (Pb) exposure i s estimated at 0.8-1.2 billion soles per year, with
a mean estimate o f 1.0 billion soles, or 0.48 percent o f GDP in 2003 (Figure 3.4). T h i s estimate
i s based on lead exposure from all sources (leaded gasoline, industry, and possible other sources
such as water, soil, paint and food) for the population living in cities with more than 100
thousand inhabitants. These individuals total nearly 12.5 million, or about 45 percent o f the
Peruvianpopu~ation.~~

3.12 IQ losses (reduced intelligence) represent 65 percent o f the total cost, and mild mental
retardation (MMR) 34 percent. Cardiovascular mortality and elevated blood pressure morbidity
in adults constitute only 1 percent o f the total cost. In addition, lead exposure i s estimated to
cause 1,400-23,000 annual new cases o f gastrointestinal effects in children, and 800-18,000
new cases o f childhood anemia.

40
This corresponds to the population for which the cost o f PM pollution was estimated.

40
Figure 3.4. Annual Costs of Lead Exposure (Million Soles)
I
II 700 I I

600

500

400

300

200

100

0
IQ loss in children Mild mental Cardiovascular Elevated blood
retardation mortality pressure morbidity

Source: Larsen and Strukova (2006a)

3.13 The estimated cost o f lead exposure i s based on adjustments to blood-lead level (BLL)
measurements in children and adults from 1998. As little i s known about current blood-lead
levels in the urban population, the cost estimates are highly uncertain.

3.14 A program initiated in the late 1990s to eliminate lead in gasoline has already brought
significant benefits. Lead concentrations in the air in Lima-Callao are now quite low, averaging
0 . 1 3 4 3 0 ugh3 in five monitoring sections o f the urban area during 2000-2004. However, the
health effects o f lead exposure can s t i l l be quite substantial. Lead has accumulated in soil and
water, and lead exposure can come from multiple additional sources. Box 3.1 discusses some
lead contamination “hot spots” in Peru, and Table 3.7 presents a summary o f health effects from
lead accumulation in blood.

Box 3.1. Lead Contamination “Hot Spots” in Peru

Gasoline i s not the only source o f lead exposure in Peru. A 2005 analysis conducted in L a Oroya
by a research team from St. Louis University’s School o f Public Health confirmed earlier findings by
DIGESA. L a Oroya, a town o f 30,000 inhabitants, has a metal smelter producing gold, silver, lead, zinc
and copper that is a major source o f lead pollution. About 97 percent o f children from six months to six
years o f age have lead concentrations in the blood (BLL) above 10 ug/dl. About 72 percent o f the children
have BLL o f 20-44 ug/dl and 9 percent in the range o f 45-69 ug/dl. Children with BLL in the latter range
required urgent medical attention.
There are also other cases o f elevated BLL. In 1998, Peru’s Ministry o f Health confirmed that
5,000 children living near the mining areas in the port city o f Callao had a BLL o f 2 0 4 0 ug/dl, and
nearly 100 percent o f the 350 students at the Maria Reich public school had a BLL o f more than 40 ug/dl
(Osava, 2002).
These incidences are not characteristic o f the whole urban population. BLL in most o f the Lima-
Callao metropolitan area and other cities i s much lower. Nevertheless, lead contamination “hot spots”
should be analyzed and mitigation measures urgently implemented.

Sources: Salazar M. (2005). Grave Contaminacih en L a Oroya, 15/12/05 - L a Rep6blica, 20;


http://www.pcusa.org/pcnews/2005/05677.htm;DIGESA, Osava M. (2002). Lead Poisoning I s Not a
Child’s Play, http://www.tierramerica.net/2002/0929/iarticulo.shtml

41
Table 3.7. Health Effects o f Lead

O u t m Blood lead Relationship


thresholdl
@!m)
Adults
Children
IQ reductionb 5 ND Linear relationship between 5-
20 p@dl BPbc (loss of 1.3 IQ
paints per 5 W d l BPb); loss of
3.5 IQ points above 20 pgidl.

Increased systolic blood ND 5 Linear relationship assumed


pressured between S 2 0 pg/dl (increase
of 1.25 mmHg per increase of
5 p@dl BPb for mates, and 0.8
mrnHg for females}; above 20
pgldl, an increase of 3.75
mmHg for males, and 2.4
mmHg for females.

Gastrointestinal effects 60 ND 20% of children are affected


above these rates’.

Anaemia 70 80 20% of m o t e are affected


above &e ;atese.
a
Thresholds for gastrointestrnal effects and anaemia are levels ‘at risk“. as defined
by ATSDR (1999).
The d w s e burden is always estimated for one particular year and the effects of
previws exposures are not accounted for in the year of assessment As a result.
only children aged 0-1 year old were considered in the calculations, since the
effects of lead on previous cohorts were considered in previous years.
BPb: blood lead level (in pg/dl).
Adults aged 20-79 years only.
Based on Schwartzetal. (1990); see sectmn 4.1.
ND No documented effects or insufficientevidence.

Source: Fewtrell et al. (2003)

3.15 Fewtrell et al. (2003) provide a practical methodology to estimate health effects o f lead
pollution using a Microsoft Excel model developed and distributed by the WHO Department o f
Protection o f the Human Environment (Priiss-Ustiin et. al, 2003). The model provides an
estimate o f the population shares with different BLL using a lognormal distribution o f average
BLL and standard deviations from available studies. Health effects are then estimated by
applying the relationships between BLL and health effects in Table 3.7.

3.16 Blood-lead level information from Espinoza et al. (2003) was applied in the Fewtrell et
al. model with two major adjustments. Although this study i s the most recent large study in
Peru, it dates back to 1998 and the average BLL does not reflect the recent phase-out program
o f lead in gasoline. While there i s great uncertainty regarding how much BLL will decline from
a lead phase-out program, international experience indicates that a program over a five-year
period could lead to a 40 percent reduction in BLL. Applying this adjustment factor gives an
average BLL o f 4.3 ug/dl in children and 2.0 ug/dl in adults. These average levels are below the
lowest threshold (i.e., 5 ug/dl) for health effects reported in Table 3.7. Nevertheless, part o f the
population may have a BLL well above this threshold. This i s reflected in the standard deviation
reported by Espinoza et al. (2003). With a lower BLL today than in 1998, the standard deviation
may also be lower now than in 1998. Therefore, a range was used, with a “low” equal to 60-100
percent o f the standard deviation reported by Espinoza et al. (2003).

42
Table 3.8. Estimated Health Effects per 1000 People

Notes: I Q indexes intelligence; BP = blood pressure; MMR = mild mental retardation.


Source: Larsen and Strukova (2006a)

3.17 The adjusted BLL and the range in standard deviation are applied in the model to
estimate population BLL. The result suggests that an estimated 44a-46 percent o f the children
and 0-11 percent o f the adults have BLL > 5 ug/dl, and an estimated 5-14 percent o f the
children and no adults have BLL > 20 ug/dl. Estimated health effects per 1000 children and per
1000 adults are presented in Table 3.8. It i s assumed that I Q losses take place during the first 5
years o f a child's life, while gastrointestinal effects and anemia can occur in children under 15
years o f age. In adults, the health effects are increased blood pressure (BP) and anemia.

3.18 Studies have found an average loss o f 1.3 I Q points per 5 ug/dl BLL in children.
Fewtrell et al. (2003) apply a lower threshold o f 5 ug/dl BLL, below which no I Q loss occurs,
and an upper threshold o f 20 ug/dl BLL, above which no further I Q losses are expected (Le., a
loss o f about 3.5 I Q points for BLL > 20 ug/dl).l*For some children, an I Q loss w i l l cause mild
mental retardation (MMR), occurring at an I Q o f 50-70 points. Thus, chldren with an I Q o f 70-
73.5 points are at risk o f MMR from lead exposure. Following the assumption o f a normal
distribution of I Q in the population, the number o f children with MMR from lead exposure i s
estimated by applying the results in Table 3.8 to the estimated number o f children with IQs o f
70-73.5 points. Estimated annual loss o f intelligence from lead exposure i s presented in Table
3.9, totaling about 160-235 thousand I Q points and 1750-2670 cases o f MMR.

Table 3.9. Estimated Annual IQ


Losses and Cases of MMR from Lead Exposure
Low High
I O Point Losses (thousands)
I Q (1) - loss o f 0.65 points per child 42 30
I Q (2) - loss o f 1.95 points per child 45 43
I O_(3)_-,loss o f 3.25 Doints Der child 32 41
I Q (4) - loss o f 3.50 points per child 40 120
TOTAL LOSSES (THOUSANDS) 159 234

I Number o f children with MMR 1750 2670

41
Fewtrell et al. (2003) apply a linear relationship through the mid-point o f each 5 ug/dl BLL interval, with a
maximum loss o f 3.5 IQpoints.

43
3.19 Other health impacts o f lead exposure are gastrointestinal effects in children, anemia in
children and adults, and elevated blood pressure in adults, resulting in a higher risk o f
cardiovascular disease and mortality. As gastrointestinal effects and anemia are found to
develop at BLL exceeding 60-80 ug/dl, relatively few cases are expected in most cities in
Peru:‘ For increased blood pressure, effects are only significant in the ‘‘hgh”case. Estimated
annual cases o f gastrointestinal effects, anemia and cardiovascular mortality from increased
blood pressure are presented in Table 3.10.

Table 3.10. EstimatedAnnual Cases of “Other Health Effects”

LOW HIGH
GASTROINTESTINAL EFFECTS 1,400 23,000
IN CHILDREN
ANEMIA IN CHILDREN 800 18,000

I ANEMIA IN ADULTS I 0 1 0 1
CARDIOVASCULAR MORALITY 0 40

Costs of Health Eflects

3.20 Estimated annual costs o f health effects from lead exposure are presented in Table 3.1 1,
totaling 0.8-1.2 billion soles per year. The main costs are associated with IQ losses and mild
mental retardation (MMR). Based on studies in the United States (Schwartz, 1994; Salkever,
1995), the estimated cost o f IQ losses reflects expected lifetime income losses, using a 1.6
percent decline in income for every one-point loss in IQ.43 Studies o f income losses from MMR
are not readily available. Consequently, income losses are estimated as proportional to MMR
disability, using a disability weight o f 0.36 provided by WHO. In addition, DALYs from MMR
are valued at GDP per capita to reflect the cost o f MMR that i s not included in income losses.
The cost o f cardiovascular mortality i s an average o f the human capital value and the value o f
statistical l i f e (VSL). In the absence o f data on frequency o f healthcare visits and medication,
the cost o f elevated blood pressure morbidity i s based on the valuation o f DALYs at GDP per
capita. Costs o f gastrointestinal effects and anemia are not included because o f data limitations.
However, in Peru’s case, these costs are not likely to be significant compared to IQ losses and
MMR.

Table 3.11. Annual Cost of Health Impacts from Lead Exposure (Million Soles)

IQ
loss in children
I Total cost
530-775
I Percent of
mean cost
65%
Mild mental retardation (MMR) 270-4 15 34%
I
Cardiovascular mortality in adults 0-10 0.7%
Elevated b l o o d pressure morbidity in adults 0-5 0.3%
TOTAL ANNUAL COST I 800-1205 100%

42 There could be additional cases o f BLL > 60 u d d l in lead contamination “hot spots” (see Box 1).
43 This reflects a mean estimate o f income losses. An annual discount rate o f 3 percent and a real increase in annual
income o f 2 percent is applied. A 0.5 percentage-point income loss attributed to a reduced likelihood o f labor force
participation from a decline in IQ i s not included because o f inadequate comparable data on factors influencing labor
force participation in Peru vs. the United States.

44
3.21 It should be noted again that the costs presented in Table 3.1 1 are only for the urban
population in cities with more than 100 thousand inhabitants, and that the estimates are based on
adjusted BLL measurements fi-om 1998. As there i s great uncertainty about current BLL in the
urban population as a whole (and in the rural population), new studies o f BLL in children and
adults are needed to provide a better estimate o f health effects and their costs.

Water Supply Sanitation and Hygiene

3.22 The annual cost o f inadequate water supply, sanitation and hygiene i s estimated at 1.8-
2.7 billion soles, with a mean estimate o f 2.3 billion (Figure 3.5). The cost o f health impacts
represents an estimated 82 percent o f the total mean cost (1.9 billion soles), and expenditures to
avert mortality and morbidity represent about 18 percent (0.4 billion soles). Health impacts
include mortality and morbidity, and averting expenditures include bottled water consumption
and household boiling o f drinking water.

Figure 3.5. Annual Costs by Category (Million Soles)

1400

1200

1000

800

600

400

200

0
Diarrheal Morbidity Diarrheal Mortality Boiling of drinking Bottled water Hep A , Typhoid,
water consumption Paratyphoid

Source: Larsen and Strukova (2006a)

3.23 Diarrheal morbidity and mortality are the major health effects o f inadequate water
quality and quantity, sanitation facilities and practices, and hygiene." WHO estimates that 90
percent o f diarrheal illness i s attributable to these factors (WHO 2002). The Peru Demographic
and Health Survey (DHS) 2000 provides data on diarrheal prevalence in c h l d r e n under the age
o f five years. I t reports a two-week diarrheal prevalence rate o f 15.4 percent. T h i s rate i s used to
estimate annual diarrheal cases in children under five. Neither the DHS survey, nor any other
household survey in Peru, provides information on diarrheal illness in the population above 5
years o f age. Consequently, estimates fi-om Colombia were applied, indicating that diarrheal
incidence in the population above 5 years o f age i s one-seventh to one-fifth the incidence in
children under five years (Larsen, 2004b)

3.24 Data fiom the Ministry o f Health indicates that 4.6 percent o f child mortality was due to
intestinal diseases in 2000. T h i s serves as the lower boundary for estimating diarrheal mortality.
The Global Burden o f Disease 2002 (WHO 2002) indicates that 9-1 3 percent o f child mortality
could be fi-om diarrheal illness in Peru, which takes into account possible substantial under-
reporting o f mortality. T h i s i s the average o f AMRO B and AMRO D WHO sub-regions,
reflecting that the child mortality rate in Peru approximates the average o f the two sub-regions.

44
Hygiene refers to personal hygiene (such as handwashing), domestic hygiene and food hygiene.

45
A diarrheal mortality rate o f 13 percent o f the under-5 child mortality rate serves as the upper
boundary for estimating diarrheal mortality.

3.25 Sometimes diarrheal illness requires hospitalization. However, Peru has no readily
available centralized records that provide data on the annual number o f diarrheal
hospitalizations. Consequently, information from the website o f Peru’s Ministry o f Health on
the total number o f intestinal disease hospitalizations was used, corresponding to 0.075 percent
o f diarrheal cases in children under five and 0.05 percent o f cases in the population over 5.

3.26 Table 3.12 presents the estimated health impacts from inadequate water supply,
sanitation and hygiene, and Table 3.13 presents disability adjusted life years (DALYs).

Table 3.12. Estimated Health Impacts from InadequateWater, Sanitation and Hygiene
EstimatedAnnual Cases
Low Estimate High Estimate
Cases o f Diarrheal illness
Children (under the age o f 5 vears) - increased mortalitv 845 2.390
Children (under the age o f 5 years) - increased morbidity 8,360,000 8,360,000
Population over 5 years o f age - increased morbidity 9,900,000 13,680,000
Cases o f Diarrheal HosDitalization
Children (under 5 years o f age) 6,300 6,300
Population over 5 years o f age 5,900 5,900

Table 3.13. EstimatedDALYs from Diarrheal Mortality and Morbidity


Estimated Annual DALYs
Low Estimate High Estimate
Children (under the age o f 5 years) - increased mortality 28,760 81,285
Children (under the age o f 5 years) - increased morbidity 2,790 3,715
Population over 5 years o f age - increasedmorbidity 11,000 19,750
TOTAL 42,550 104,750

3.27 The annual cost o f diarrheal illness fiom inadequate water, sanitation and hygiene i s
estimated at 1.5-2.1 billion soles (Table 3.14). The estimated cost o f diarrheal child mortality i s
based on the human capital approach (HCA). The cost o f morbidity encompasses medical
treatment, medicines, the value o f lost time, and DALYs from morbidity valued at GDP per
capita to reflect the cost o f reduced well-being associated with illness.

Table 3.14. EstimatedAnnual Cost of Diarrheal Illness (Million Soles)


I I Estimated Annual Cost I
Low Estimate High Estimate
Mortality
Children under 5 years 205 575
Morbidity
Children under 5 years 585 650
Population over 5 years 665 880
TOTAL ANNUAL COST 1,455 2,105

46
3.28 Cost o f illness i s presented in Table 3.15 for diarrheal m~rbidity.~'
About 25-35 percent
o f these costs are reflect the value o f time lost to illness (including care gving), and 65-75
percent reflect cost o f treatment and medicines. The estimated cost o f time losses i s based on 75
percent o f wage rates.

Table 3.15. Estimated Annual Cost o f Illness (Morbidity)


Estimated Annual Cost
(Billion Soles)
Low Estimate I High Estimate
Cost o f medical treatments (doctors, hospitals, clinics) 0.53 0.55
Cost o f medicines 0.31 0.33
Cost o f time lost to illness 0.30 0.47

3.29 Inadequate water, sanitation and hygiene also cause other diseases. There were 39
thousand cases o f typhoidparatyphoid and 17 thousand cases o f hepatitis A in Peru in 2000,
according to Ministry o f Health data. The cost o f these illnesses i s estimated at 70 million soles
(Table 3.16).

Table 3.16. Estimated Annual Cost of TyphoidParatyphoid and Hepatitis A


Estimated Total Annual Cost (Million Soles)
Cost o f hospitalization 50
Cost o f medication 2
Cost o f time losses 18
TOTAL ANNUAL COST 70

3.30 Averting expenditures represent an additional cost o f inadequate water supply. If people
perceive a risk o f illness fiom the municipal water supply or fiom other sources o f water supply
that they rely on, some o f them are likely to purchase bottled water for hnlung purposes, boil
their water or install water purification filters. Economists usually consider these averting
expenditures a cost o f health risks.

3.31 Estimated averting expenditures are presented in Table 3.17, based on total bottled
water consumption o f about 120 million liters per year (Ministerio de la Produccion - OJicina
de Estadz'stica Industrial) and boiling o f drinking water in nearly 70 percent o f households (US
AID Hand Washing Survey, 2004).

Table 3.17. Estimated Annual Household Cost of Averting Expenditures


Total Annual Cost (Million Soles)
Low Estimate I High Estimate
Cost o f bottled water consumption 75 165
Cost o f household boiling drinking water 190 380

4s These costs do not include the valuation of DALYs.

47
Indoor Air Pollution

3.32 The mean estimated annual cost o f health impacts from indoor air pollution associated
with using traditional fuels (mainly fuel wood) i s about 0.8 billion soles. Respiratory child
mortality i s 34 percent o f the cost, and acute respiratory illness (ART) in children represents 32
percent. Chronic obstructive pulmonary disease (COPD) and ARI morbidity in adult females,
and adult female COPD mortality, each represent 17 percent o f this cost (Figure 3.6).

Figure 3.6. Annual Costs of Indoor Air Pollution (Million Soles)

300

250

200

150

100

50

0
Child Child Adult Adult COPD
Respiratory Respiratory Respiratory and Mortality
Mortality Morbidity COPD Morbidity

Source: Larsen a n d Strukova (2006a)

3.33 According to the Peru Demographic and Health Survey 2000, around 87 percent o f rural
households and 11 percent o f urban households used fuel wood, charcoalkoal products or dung
in 2000, constituting a major source o f indoor air pollution and respiratory health risk. Winrock
International i s currently implementing a U S A I D project in the high Andean district o f Inkawasi
in Lambayeque to reduce exposure to indoor air pollution fiom fuel wood used for coolung. A
baseline pre-intervention monitoring o f indoor air quality (PM and CO) was undertaken in the
kitchens o f 48 rural households in four communities in July-August 2005. Measurements were
undertaken for 24 hours during two sessions. The first session was from 5 am to 9 pm,
corresponding to the cooking period. The second session was nighttime from 9 pm to 5 am,
corresponding to the non-coolung time. A summary o f the P M results are presented in Table
3.18. The average and median level o f PM4 was alarmingly high during the cooking period, and
they exceeded outdoor air quality standards during the nighttime. PM4 concentrations exceeded
500 ug/m3 in 40 percent o f the households, exceeded 1000 ug/m3in more than 20 percent o f the
households, and exceeded Peru’s 24-hour national air quality standard for PM2.5 o f 65 ug/m3in
nearly 90 percent o f the households.&

Table 3.18. Concentration of PM4 (pg/m3) in a Sample of 48 Kitchens


COOKING NON-COOKING 24-HOUR
PERIOD* PERIOD** AVERAGE
AVERAGE f 907 f 1287 162 f 343 635 f 849
SD
MEDIAN 408 58 280
RANGE 5-6312 ND-2093 3-3880

46Smoke from fuel wood consists of very fine particulates. The difference in the share P M 4 and PM2.5 in total P M
can therefore be expected to be small.

48
3.34 These monitoring results provided by Winrock International give a strong indication o f
the level o f the problem o f indoor air pollution in Peru's rural communities. PM pollution can
be expected to be particularly high from the use o f fuel wood with open fire or unimproved
stove, with serious respiratory health effects.

3.35 Desai et al. (2004) provide a review o f research studies from around the world that have
assessed the magnitude o f health effects from indoor air pollution from solid fuels. The odds
ratios for acute respiratory illness (ART) and chronic obstructive pulmonary disease (COPD) are
presented in Table 3.19. The ratios represent the risk o f illness for those who are exposed to
indoor air pollution compared to the risk for those who are not exposed. The range o f low to
high ratios reflects Desai et al.'s (2004) review and has been applied in this chapter to young
children under the age o f five years (for ARI) and adult females (for ARI and COPD) to
estimate the increase in mortality and morbidity associated with indoor air pollution.47It i s these
population groups who suffer the most from indoor air pollution because they spend much more
o f their time at home andor more time cooking than older children and adult males.

Table 3.19. Health R i s k s of Indoor Air Pollution

Low High
A c u t e Respiratory Illness (AM) 1.9 2.7
Chronic obstructive pulmonary disease (COPD) 2.3 4.8
Source: D e s a i et al. (2004)

3.36 T o estimate the health effects o f indoor air pollution from the odds ratios in Table 3.19,
baseline data for COPD and ART are needed. Data on COPD mortality and especially morbidity
incidence, according to international disease classifications, are not readily available for Peru.
Therefore, regional estimates from WHO (2001) and Shibuya et al. (2001) for the AMRO D
regon were applied, i.e., a COPD incidence rate o f 33 per 100 thousand females and a COPD
mortality rate o f 2 percent o f female crude m ~ r t a l i t y . ~ '

3.37 For ARI in chldren under five, the two-week prevalence rate o f about 20 percent from
the Peru DHS 2000 was used to estimate total annual cases o f ARI in children under-5. No
information on ARI in adults i s available in the DHS household survey or any other household
survey in Peru. An analysis o f a database from Colombia does however suggest that ARI
incidence in the population over 5 years in Peru i s about 16-18 percent o f the incidence in
children under five (Larsen, 2004b). T h i s incidence differential i s used to estimate annual cases
o f ARI in adult females. For ARI mortality in children under five, a range o f 12-18% o f total
estimated child mortality i s applied, reflecting uncertainty over all-cause and cause specific
child mortality statistics. The low bound was from the GBD 2002 for the AMRO D regon o f
WHO, and the hgh bound reflected child mortality statistics in Peru.

3.38 Estimated health effects o f indoor air pollution are presented in Table 3.20. They are
estimated from the baseline health data discussed above, the odds ratios in Table 3.19, and the
urban and rural population shares using solid fuels. Estimated cases o f ARI child mortality from
indoor air pollution represent 25-40 percent o f total ARI child mortality in Peru. Estimated ART
morbidity in chldren under five i s 20-30 percent o f total ARI morbidity in this age group in the
country, and estimated ARI in adult females i s 15-25 percent o f total adult female ARI.
Similarly, the estimated cases o f COPD mortality and morbidity represent about 2 0 4 0 percent
o f total estimated female COPD from all causes. Table 3.21 presents the estimated health effects

47 Desai et a1 (2004) present odd ratios for lung cancer, but this effect o f pollution is not estimated in this chapter.
This is because the incidence o f lung cancer among rural women i s generally very low.
48 Peru belongs to the AMRO D region of WHO, which i s one o f three WHO regions in the Americas.

49
in disability adjusted l i f e years (DALYs). An estimated 42-62 thousand DALYs are lost each
year due to indoor air pollution.

Table 3.20. Estimated Annual Health Impacts of Indoor Air Pollution


I I Estimated Annual Cases I
Low High
Acute Respiratory Illness (AM):
Children (under the age o f 5 vears) - increased mortalitv I 911 I 1.291 I
Children (under the age o f 5 years) - increased morbidity 2,121,400 3,102,200
Females (30 years and older) - increased morbidity 546,200 825,600
I

Adult females - increased mortality 334 I 605


Adult females - increased morbidity 924 I 1,665 I

Estimated Annual DALYs (000)


Low High
Acute Respiratory Illness (AM):
Children (under the age o f 5 years) - increased mortality 31 44
Children (under the age o f 5 years) - increased morbidity 3.5 5
Females (30 years and older) - increased morbidity 3.8 5.8
Chronic obstructive pulmonary disease (COPD):
Adult females - increased mortality 2 3.6
Adult females - increased morbidity 2.1 3.7

3.39 Total annual cost o f indoor air pollution i s estimated at 0.55-1.0 billion soles, with a
mean estimate o f 0.78 billion (Table 3.22). The cost o f mortality for adults i s based on the value
o f statistical life (VSL) as a high bound and HCA as a low bound, and on the human capital
approach (HCA) for children. The cost o f morbidity includes the cost o f illness (medical
treatment, and value o f lost time for adults) and DALYs from morbidity valued at GDP per
capita to reflect the cost o f reduced well-being associated with illness. The value o f time for
adults i s 75 percent o f urban and rural average hourly wages, which are 3.8 SI. and 2.5 SI.
respectively.

3.40 There i s very little information about the frequency o f doctor visits, emergency visits
and hospitalization for COPD patients in any country in the world. Schulman et al. (2001) and
Niederman et al. (1999) provide some information on this from the United States and Europe.
Figures derived from these studies are applied to Peru in this chapter. Estimated lost work days
per year i s based on frequency o f estimated medical treatment plus an additional 7 days for each
hospitalization and one extra day for each doctor and emergency visit. These days were added to
reflect time needed for recovery from illness.

3.41 T o estimate the cost o f a new case o f COPD, the medical cost and value o f time losses
have been discounted over a 20-year duration o f illness. An annual real increase o f 2 percent in
medical cost and value of time has been applied to reflect an average expected increase in
annual labor productivity and real wages. The costs were discounted at 3 percent per year, a rate
commonly applied by WHO for health effects.

50
Low High
Acute Respiratory Illness (AM):
Children (under the age of 5 years) - increased mortality 220 311
Children (under the age of 5 years) - increased morbidity 200 302
Adult females - increased morbidity 84 130
Chronic obstructive pulmonary disease ICOPD):
I Adult females - increased mortality I 22 I 244 I
I Adult females - increased morbiditv I 19 I 33 I
TOTAL 545 1,020

Land Degradation

3.42 The mean estimated annual cost o f agricultural land degradation i s 0.7 billion soles, o f
which soil erosion represents about 65 percent and soil salinity about 35 percent (Figure 3.7).
These costs are the value o f crop yield reductions associated with salinity and erosion. Data
limitations have prevented an estimate o f the cost o f pasture (rangeland) degradation, and while
the cost o f reservoir sedimentation from soil erosion i s likely to be significant, it i s not estimated
in this chapter.

0.50
0.45 -
0.40 -_
0.35 -
0.30 -
0.25
0.20
0.15 -
0.10
0.05 -
0.00 I

Source: Larsen and Strukova (2006a)

3.43 An estimated 5.5 million hectares are under cultivation in Peru o f which about 1.7
million hectares are irrigated. Permanent pasture constitutes nearly 18 million hectares (Peru
Statistical Yearbook 2003). There i s a general perception that the Sierra region i s overexploited
due to difficulties o f agricultural production on the mountain slopes and improper land use
practices, and that major salinity problems occur in the Costa region due to improper irrigation
and drainage (Umali, 1993). There are however very few studies o f the extent o f land
degradation and how degradation affects agricultural productivity in Peru. No systematic and
comprehensive studies have recently been undertaken o f soil salinity levels in the Pacific
Region. Statistics (http://www.inei.gob.pe/) indicate that about 307 thousand hectares in Peru
are salt affected. The problem i s particularly widespread in the departments o f Piura,
Lambayeque and Ica.

51
3.44 In the absence o f precise data, it i s assumed in t h i s chapter that 1/3 o f saline lands are
abandoned due to their low quality. That means 350-1000 S/. in annual income i s lost per
hectare, reflecting an approximate estimate o f the economic return to cultivated land. On the
remaining 2/3rd o f salinity-affected lands, i t i s assumed that crop yields are reduced by 10-25
percent for cotton and by 15-30 percent for rice due to ~alinity.4~ O f land affected by salinity, an
estimated 70 percent i s used for cultivation o f rice and 30 percent i s used for cotton cultivation.
Estimated apcultural losses due to soil salinity are presented in Table 3.23, with a mean annual
loss o f 0.26 billion soles.

Table 3.23. Annual Cost o f Soil Salinity

Source: Larsen and Strukova (2006a)

3.45 As major studies indicate, the Sierra region i s the one most affected by soil erosion.
Peru Statistical Yearbook 2004 indicates that 66 percent o f severely eroded soils are in Sierra.
Major reason for soil erosion i s degradation and abandonment o f agricultural terraces. In the
absence o f data on the share o f land area that i s eroded due to agricultural activity, it i s assumed
that 60 percent o f agricultural cropland i s eroded in Sierra (CONAM, 2001). I t i s also assumed
that only 45 percent o f cultivated land i s used annually, which corresponds to the share o f land
under cultivation in Costa and Sierra from the Peru Statistical Yearbook 2003. The main
practice to cope with erosion i s construction o f terraces (Valdiva, 2002). Valdiva presents yield
estimates for potatoes, corn and barley for the Northern (Cajamarca), Central (Lima) and
Southern (Cuzco) regions o f Peru with and without terraces. On average, yeld gains from
apcultural terraces are 5 4 0 % for potato and corn, which are the major crops in Sierra. Based
on these data, the average annual revenue loss due to agricultural terrace degradation i s
estimated at 392-553 million S/. per year, representing the cost o f soil erosion (Table 3.24).
Total estimated annual cost o f land degradation i s presented in Table 3.25, ranging from 0.54 to
0.92 billion soles per year, with a mean estimate o f 0.73 billion soles (0.35% o f GDP in 2003).

3.46 Clearly, these estimates o f agricultural land degradation suffer from the limitations o f
available data. Soil salinity surveys are needed to provide better estimates o f the effects on crop
yield and the scale o f degradation. Similarly, soil erosion surveys and studies on magnitude o f
crop losses are needed to better understand the costs o f erosion in the Sierra and elsewhere. The
poor are likely to be most affected by soil erosion, and implications for income and
vulnerability need to be better understood.

Table 3.24. Estimated Annual Cost of Soil Erosion in Peru (Million Soles)
REGION
NORTHERN
CENTRAL
SOUTHERN
TOTAL 392 472 553
Source: Larsen a n d Strukova (2006a)

49 International experience indicates that yields o f cotton start declining i f soil salinity exceeds about 7.7 dS/m, and
that yields o f rice start declining if salinity exceeds about 3.0 dS/m (FAO, 1998; Kotuby-Amacher et al., 1997; and
Resources Science Centre, 1997).

52
Low High
1 soil erosion I 392 I 553 I
I s o i l salinity I 152 I 365 I
TOTAL ANNUAL COST 544 918

Natural Disasters

3.47 Peru i s annually afflicted by natural disasters such as floods, landslides, avalanches, and
storms and severe earthquakes occur periodically. The total mean annual cost o f natural
disasters i s estimated at 1 billion soles, or 0.5 percent o f GDP. Impacts o f natural disasters are
presented in Figure 3.8 and Table 3.26 for the period 1995-2003. Floods, earthquakes and
landslides are causing the most impact. Deaths are h g h e s t fiom landslides. Floods are among
the leading causes o f damages to houses and agricultural losses.

Figure 3.8. Impacts of NaturalDisasters in Peru (Thousands, 1995-2003)

I 500 7 1
1
450 -
I
400 -.
350 - /
300 - I

250
200
150
100
50
0
1995 1996 1997 1998 1999 2000 2001 2002 2003

IPeople affected Houses affected

Source: INDECI (2005)

Table 3.26. Natural Disasters and Impacts in Peru, 1995-2003

1995 1996 1997 1998 1999 2000 2001 2002 2003 TOTAL
Total
natural 393 311 480 687 522 1116 1110 1376 3316 9311
disasters
Deaths
218 832 254 305 229 210 474 198 213 2933
Affected
54507 180074 255813 261712 232614 239903 448813 266904 62347 2002687
people
Affected
7354 20537 36191 76157 53753 42489 82534 38938 34679 392632
houses
Destroyed
2961 7070 6676 62693 4332 2643 27030 2801 8525 124731
houses
Destroyed
21272 32589 E13658 121718 59977 13381 42873 38822 13615 457905
hectares ,

53
3.48 There are no systematic and comprehensive estimates o f the cost o f damages from
natural disasters in Peru. The only estimation available i s from Bambaren Alatrista (2002),
which was developed to evaluate damages from El Niiio. T h ~ sstudy allowed coming up with
damage cost by category. Some cost categories, such as houses affected and destroyed were not
presented explicitly in the study. Therefore, estimations from Columbia were applied (Larsen,
2004b).

3.49 The cost categories presented by Bambaren Alatrista (2002) are adopted in this chapter
and applied to provide an order o f magnitude o f the annual cost o f natural disasters. The cost of
annually occurring disasters i s based on annual averages for the 15-20 year period 1985/90-
2003. T h i s period was selected because o f more detailed and comprehensive data were
available. Total estimated annual cost o f natural disasters i s presented in Table 3.27. The largest
cost i s associated with damages to housing, infrastructure and public buildings. In total, the
annual cost i s estimated at 1075 Million soles. These estimates likely underestimate the full
effects o f natural disasters. This i s due to several factors: the conservative estimates stemming
from the H C A methodology; the lack o f incorporation o f broader dynamic multiplier effects on
regional and national economic development stemming from natural disasters; and the fact that
using 1985/90-2003 averages neglects the increasing trend o f natural disasters and their
resultant effects over this period (Bernales, 2006).

Table 3.27. Estimated Annual Cost o f Natural Disasters


I Million Soles I
IDeaths* I 45 I
Injured 30
Missing persons 10
Houses destroyed 325
kouses affected I 535 I
Hectares destroyed 70
Roads destroyed, affected 35
Railroads destroyed, affected 5
IBridges destroyed, affected I 20 I
TOTAL COST 1,075

Deforestation

3.50 The estimated annual cost o f deforestation i s 0.3-0.6 billion soles, with a mean estimate
o f 0.44 billion (0.2 percent o f GDP in 2003). These costs represent the net present value o f
direct and indirect use forest values lost to annual deforestation in Peru.

3.51 Origmal forest cover in Peru i s estimated to have been 59 percent o f total land area.
Today’s forest cover i s about 50 percent. W h i l e this i s s t i l l above the world average o f 30
percent, forest cover in Peru i s distributed extremely unevenly across the country. About 80
percent o f remaining forest area in Peru i s located in three departments to the east o f the
mountain chains with about 50 percent in Loreto.” These departments represent 43 percent o f
Peru’s total land area and have less than 5 percent o f the country’s total population. Forest cover
in these departments averages almost 96 percent. The six departments at the foot o f the

’O Loreto, Ucayali and Madre de Dios.

54
mountain chains, extending from north to south in Peru, with about 18 percent o f the country’s
population, have now an average o f 52 percent forest cover.51T h ~ srepresents 20 percent o f
Peru’s forest area. Forest cover in these departments was reduced by about 25 percent in the last
10 years. Some o f these departments have the highest annual rate o f deforestation (Figure 3.9).
Hectares o f annual deforestation are presented in Figure 3.10.” Annual average deforestation in
these nine departments totals about 123 thousand hectares.

Figure 3.9. Annual Rate of Deforestation 1990-2000

1.2%
1
1 .O%

0.8%

0.6%

0.4%

0.2%

0.0%
Amazonas Junin cuzco Huanuco Pasco San Martin

Source: Elgegren (2005)

Figure 3.10: Hectares of Annual Deforestationin Peru 1990-2000

40,000 I
I
35,000

30,000

25,000

20,000
15,000

10,000
5,000

Source: Elgegren (2005)

3.52 The cost o f deforestation i s very difficult to estimate. Some costs are already included
in the cost o f natural disasters and soil degradation to the extent that deforestation contributes to
increased frequency and severity o f flooding and landslides and increased agricultural land
erosion. Deforestation may also have impacts on water resources quality. However, from a
practical standpoint, it i s very difficult to identify and isolate these deforestation costs at the
national level, and they are not included in the estimated cost in this chapter.

3.53 There i s a large literature that reflects different approaches to tropical forest valuation.
This chapter uses background studies by Pearce et al. (1999) and Lampietti and Dixon (1994)

5 1 Amazonas, Cusco, Huanuco, Junin, Pasco, ad San Martin.


’*Forest in the departments not presented in Figure 7.2 constitutes about 2.2 percent of total forest area in Peru.

55
that provide extensive literature overviews. Several recent studies describe deforestation costs in
the Brazilian Amazon. Margulis (2004) and Seroa da Motto (2002) analyze direct forest use
values o f sustainable forest management for the Brazilian Amazon. A value o f US$28.5 per
hectare was used. Schneider et al. (2002) apply about 10 US$ per hectare, since the study was
done at the municipal level, where higher transportation cost had a large influence on financial
returns. Gram (2001) presents non-timber values for the Peruvian tropical forest. They are in the
range o f US$9 to US$17 per hectare. These values are consistent with the magnitude o f
estimates in Lampietti and Dixon (1994) for non-timber values in Central and South America
equal to US$9 to US$10 per hectare. Smith et al. (1999) present estimated willingness to accept
compensation for forestland that would be partially transformed into preserves and the rest
transformed into agroforestry in the Peruvian Amazon’s Ucayali region. The latter implied
about US$18 per hectare o f lost annual profit from direct use values, including profit from
slash-and-burn agriculture and non-timber products. T h i s value i s consistent with the s u m o f the
two lower direct use values (US$9 and US$lO) from (Schneider et al., 2002) and (Gram, 2001).
Other direct use values include ecotourism. Pearce et al. (1999) estimate these values in the
range o f US$5 to US$lO per hectare o f tropical forest and stress their local specific character.
Margulis (2004) estimates these values as approximately US$9 per hectare o f Brazilian Amazon
forest.

3.54 Indirect use values o f forest include watershed protection, nutritional and erosiodflood
prevention, and waterhtrient recycling. Although there i s no definite agreement in the
literature about the magnitude o f this forest value, Smith et al. (1999) derive a willingness-to-
pay (WTP) o f US$4 per hectare in Peru as an indicator o f the tropical service ecosystem value.
Pearce et al. (1999) present a higher end estimation o f US$30 per hectare o f tropical forest
generalized from the literature review. Pearce et al. also give a wide range for the option value
o f forest bio-prospecting (ie., the prospects for future development o f new drugs using rich
tropical forest biodiversity) in the range o f US$O.Ol to US$0.21 per hectare. Existence value o f
forest associated with tropical forest preservation i s estimated for the Brazilian Amazon in
Margulis (2004). Margulis utilized the results o f the recent Horton et al. (2002) study WTP.
Afier adjusting for the indirect use values, the resulting value i s equal to US$3 1.2 per hectare o f
forestland. Pearce et al. (1999) present US$13 to US$27 per hectare, derived fi-om the literature
review.

3.55 The annual values o f lost forest benefits per hectare in Peru are summarized in Table
3.28. The direct use values in the range o f US$24 to US$56 per hectare per year reflect the local
private forest value, which includes the value from sustainable logging, non-timber products
and tourism and recreation. “Lowyyand “high” non-use values presented in Table 3.28 differ by
a factor o f three, reflecting the nature o f value techniques. The non-use forest values are
therefore not included in the estimate o f the cost o f deforestation for Peru in this chapter.

56
Table 3.28. Annual Values o f Rainforest Benefits (US% Per Hectare)
FOREST SERVICE
LOW
ESTIMATE
ANNUAL VALUE
HIGH
ESTIMATE
MEAN
ESTIMATE
I
DIRECT USE VALUES 24 56 40
SUSTAINABLE FOREST
MANAGEMENT 10 29 19
NON TIMBER PRODUCTS 9 17 13
TOURISM AND RECREATION 5 10 8
INDIRECT USE VALUES 4 30 17
NON-USE VALUES 13 52 33
OPTION VALUE (BIO-
PROSPECTING) 0 21 11
EXISTENCE VALUE 13 31 22
+
DIRECT INDIRECT USE VALUE 28 86 57
TOTAL VALUE 41 138 89

3.57 Thts chapter refrains from including carbon storage value o f forest as a cost o f
deforestation due to the uncertain magnitude o f the carbon price now. Carbon markets are only
emerging and deforestation reduction i s currently not eligible for any compensation. However,
the situation could change in the near future. Forest values should then be updated using carbon
market prices and the eligible share o f the carbon sequestration.

Municipal Waste Management

3.58 The estimated annual cost o f inadequate municipal waste management i s 90-110
million soles, with a mean estimate o f 100 million. T h i s represents an estimate o f the number o f
urban households without adequate municipal waste collection multiplied by an estimate o f
their willingness to pay for waste collection service.

3.59 Information fiom CONAh4 indicates that about 70 percent o f municipal waste i s
collected in urban areas.54T h i s figure i s used in this chapter as an approximation o f the percent
o f households with municipal waste collection. The average household size in Lima i s 4.4 and
4.5 in other urban areas (Peru DHS 2000). The number o f households in Lima without adequate
collection i s then about 530 thousand. An adjusted rate o f inadequate waste collection for the
other urban areas o f Peru was applied. In other major cities, with a total population o f nearly 6
million, there are an estimated 375 thousand households without adequate waste collection.

3.60 A common technique for estimating the cost o f not having waste collection services i s
to apply a household’s willingness-to-pay (WTP) for such services. However, there i s no readily
available information about households’ WTP for municipal waste collection in Peru.

This reflects an annual discount rate o f 3-10 percent over a period o f 30 years o f lost benefits.
53
54Evaluacibn Regional de 10s Servicios de manejo de Residuos Sblidos Municipales. Informe Analitico de Peni -
EVAL 2002 - CONAM/OPS.

57
Consequently, a benefit transfer approach was applied t o Malaysian WTP t o estimate WTP for
waste collection services in Peru (Table 3.29). By adjusting for GDP per capita differentials and
solid waste generation per household, the transfer approach results in a W T P in the range o f
120-150 soles per household per year in Lima and 60-75 soles per year in Peru’s other cities.
Multiplying these figures by the number o f households without adequate solid waste collection
gives a cost estimate or welfare loss o f 90-110 m i l l i o n soles per year f r o m inadequate solid
waste collection. T o provide a more reliable estimate o f the cost o f inadequate waste
management, a study o f households’ WTP i s needed in Peru’s urban areas.

Table 3.29. WTP for Improved MunicipalWaste Collection in Malaysia


LOW HIGH
ESTIMATE ESTIMATE
WTP FOR IMPROVED SOLID WASTE MYR/HH/MON
COLLECTION TH 37 45
WTP FOR IMPROVED SOLID WASTE
COLLECTION US$/HWEAR 117 142
MALAYSIA GDPKAPITA US$ 3,640 3,640
HH SIZE PERSONS 4.9 4.9
AVERAGE GENERATION OF SOLID KG/PERSON/D
WASTEPERSON AY 1 1
AVERAGE GENERATION OF SOLID
WASTE PER HH KG/HWDAY 4.9 4.9
me1998/poptab05.htm;
http://web.idrc.ca/es/ev-29989-201-1-DO-TOPIC.htm1

Overfishing

3.61 Peru’s fish stock i s highly uncertain; it seems t o be in the process o f r e g m e change and
bears significant adaptation cost to climate change (El Nifio). Therefore, i t i s very difficult t o
estimate any impact o f fishing levels on Peru’s fish stock. However, excess fishmg fleet
capacity does seem t o aggravate the negative impact o f El Nifio, further deteriorating the fishing
sector’s financial prospects.

3.62 By using data o n the fish catch for the last 34 years and o n the fishing fleet’s size, it i s
possible to estimate the maximum sustainable, maximum economic and open access points for a
“normal” year not affected by El Nifio. The Gordon-Schaefer model i s used for this purpose
(Gordon 1953; Schaefer 1954, 1957). The maximum sustainable point i s the level o f fishing
fleet that gives the highest sustained fish catch. The maximum economic point i s the level o f
fleet that gives the highest economic profit. In addition, the open access point i s the level o f
fleet at which economic profit i s zero, i.e., profits for fishery are at levels comparable to other
competitive sectors in the economy.

3.63 Table 3.30 suggests that the current fishing fleet is, after a substantial increase in the
199Os, exceeding the maximum sustainable point by 2 5 4 0 percent. Estimates indicate that
maximum sustainable fish catch could be achieved with a fishing fleet in the range 150-180
thousand MT, compared to the current level o f about 220 thousand MT. These estimates also
indicate that fleet capacity in 2003-2004 was almost twice as large as the economically optimal
level o f 110-120 thousand MT. The current fishing fleet capacity, or any further increase in
fleet, i s likely t o result in further hardship in the fishery sector. The current fleet i s very close to
the estimated open access point o f 225-240 thousand MT. Therefore, the average annual
predicted fishery sector profit i s n o w quite low.

58
BASE CASE BEST FIT CASE
PREDICTED PREDICTED
VOLUME VOLUME
OF CATCH FISHING OF CATCH FISHING
(MILLION FLEET (MILLION FLEET
TONS) MT TONS) MT
MAXIMUM SUSTAINABLE
9.4 180,000 9.6 150,000
POINT
MAXIMUM ECONOMIC
POINT
I 8.4 I 120,000 I 8.9 I 110,000

OPEN ACCESS POINT 8.2 240,000 7.7 225,000


FISHING FLEET
8.8 220,000 7.9 220,000
(2003-2004)

Poverty and EnvironmentalDegradation in Peru

3.65 Poverty incidence in Peru was 55 percent in 2002, ranging from 34 to 83 percent across
departments (Peru Statistical Yearbook, 2003). These estimates are based on the national
poverty line. For international comparisons, World Bank (2005~)reports that 18 percent o f the
population lived on less than US$1 per day and 38 percent lived on less than US$2 per day in
2000, adjusting for price differences across countries. This level o f poverty i s higher than in
many low-income countries. Environmental conditions are increasing the burden o f poverty.
Consequently, it i s important to gain a better understanding o f how, and to what extent, the poor
are affected by the environment with respect to health effects, natural resources degradation and
natural disasters. The cost o f environmental damage in Peru i s estimated at 8.2 billion soles per
year, or 3.9 percent o f GDP in 2003. O f this estimate, nearly 6 billion soles are from
environmental health impacts. Therefore, the focus o f this section i s environmental health.”

3.66 The poor, or low-income households, have fewer resources to cope with environmental
health effects, and a loss in income from environmental impacts i s often more detrimental to
their livelihood than to the livelihood o f h g h e r income groups. Often, the poor are also exposed
to higher levels o f environmental health risk than the non-poor population. T h i s i s especially the
case for risk o f respiratory illness and mortality o f indoor air pollution from solid fuels, and for
risk o f diarrheal illness and mortality from inadequate water supply, sanitation and hygiene. The
severity o f illness and fatality rate can also be higher among the poor if proper health services
are lacking or if their general health i s weak. For urban air pollution, the situation may differ
from city to city and depends largely on air pollution levels in relation to the distribution o f
poverty in the city. As it i s children and the elderly population that are most vulnerable to air
pollution’s health effects, the impacts among the poor and non-poor will also depend on their
respective age distributions.
~

55
Lead exposure i s not included in this section because o f lack o f data on health effects by socio-economic group.

59
3.67 The annual cost o f health impacts o f Peru’s urban air particulate pollution (PM) i s
estimated at 1.8 billion soles. Lima-Callao bears nearly 75 percent o f the estimated cost.
Therefore, the analysis presented here o f the health impacts among the poor and non-poor
population focuses on Lima-Callao. Ambient concentrations are highest in Centro and lowest in
Callao (Figure 3.1 1). Norte has the second highest PM2.5 concentration and i s the zone with the
largest population, Ambient concentrations o f PMlO follow a similar pattern.

Figure 3.1 1. Ambient Concentrations of PM2.5 (ug/m3) for 2001-2004

90
80
70
60
50
40
30
20
10
0
Este Sur Norte Centro

Source: DIGESA (2005)

3.68 Poverty incidence i s lowest in Centro and in the range o f 35-40 percent in the other
zones (Figure 5.12). Very few o f the poor people live in Centro and Callao, which are the zones
with the highest and lowest PM2.5 ambient concentrations (Figure 3.13). In contrast, many o f
the non-poor live in Centro and Norte, which are the zones with the h g h e s t PM2.5 ambient
concentrations. The weighted concentration exposure among the non-poor i s about 10 percent
higher than among the poor population, suggesting that the health effects o f air pollution might
be higher among the non-poor population (Figure 3.14). However, age distribution and age-
specific health impacts o f pollution need to be taken into account to estimate the overall health
effects in each population group.

Figure 3.12. Poverty Incidence 1997-2000 by Air Quality Monitoring Zone


45% , I
40%
35%
30 %
25%
20%
15 %
10%
5%
0%
Este Sur Norte Centro Callao

Source: Calculated from district poverty-incidence data 1997-2000 by National Institute of


Statistics, presented in Perez and Yamasato (2002)

60
Figure 3.13. Distributionof Poor and Non-Poor (MiIlions in 2003)

2.5 I
2.0

1.5
I
1.o

0.5

0.0 4
E 3 te Sur Norte Centro Calla0

I O Poor populatmn INon-poor population

Source: Based on estimates o f district population from Peru Statistical Yearbook


(2003) and o f poverty incidence from the National Institute o f Statistics, presented in
Perez and Yamasato (2002)

Figure 3.14: Population-WeightedPM2.5 Concentrations

50

40

30

20

10

0
Poor Non-Poor

Source: Larsen and Strukova (2006a)

3.69 Pope et al. (2002) provide strong evidence that most premature deaths from PM2.5 in
the urban environment are from an increase in cardiopulmonary mortality. The predominant
share o f cardiopulmonary mortality occurs among the elderly population. The age distribution
among the poor and non-poor population i s therefore an important factor in estimating mortality
from air pollution. The age distribution o f the poor and non-poor population in Lima i s
presented in Figure 3.15. As much as 37 percent o f the poor population i s children under the age
o f 15 years. More importantly for the mortality effect o f urban air pollution, more than 12
percent o f the non-poor are in the age group 60 years and up. Only 5.5 percent o f the poor are in
this age group.

Figure 3.15. Age Distributionof Lima-Callao's Poor and Non-Poor Population


i
1
70%
60%
50%
40%

30%
20%
10%

0%
A g e e 15 years Age 15-59 years Age 6 0 + years
I

61
3.70 Figure 3.16 presents the estimated health impacts per 1000 people for the poor and non-
poor population in Lima-Callao. In the base-case scenario, the impact on the non-poor i s 70
percent higher than on the poor. T h ~ outcome
s mainly results from the larger share o f non-poor
people in the age group 601- years o f age and from the fact that the cardiopulmonary mortality
rate i s substantially higher in this age group than in other age groups.

3.71 The base-case scenario assumes that the age-specific cardiopulmonary death rate and
incidence rate o f respiratory disorders are the same among the poor and non-poor. However, it
i s very possible that the age-specific death rate, the respiratory incidence rate, or both are higher
among the poor. Consequently, a mid-case and high-case scenario i s presented in Figure 3.16.
The mid-case scenario i s based on 50 percent higher death and respiratory illness rates, and the
high-case scenario on 100 percent higher rates. Only in the high-case scenario are the health
impacts per 1000 people higher among the poor than the non-poor.

3.72 The incidence o f health impacts among the poor and non-poor i s not the only relevant
indicator o f the burden o f environmental disease. Health impact in relation to income i s also a
useful indicator, because illness and premature mortality result in medical treatment costs and
lost income in addition to pain, suffering and activity restriction. Thus, high health impact
relative to income i s an indication o f the burden on the living standard o f a household.

Figure 3.16. Health Impacts per 1000 People

160
140
120
100
BO
60
40
20
0
Base-case scenario "Mid-case" scenario '"High-case" scenario

€2Poor INon-Poor

Note: Health impacts are indexed to 100 for the poor in the base-case scenario. Therefore,
impacts per 1000 people show the relative magnitude o f impact on the poor and non-poor.
Source: Larsen and Strukova (2006a)

3.73 Figure 3.17 presents the estimated health impacts per unit o f income in Lima-Callao.
This portrays a very different situation than simply health impacts per person. In the base-case
scenario, the health impacts relative to income are nearly 75 percent higher among the poor than
among the non-poor. In the high-case scenario, the impacts relative to income are more than 3
times higher among the poor than among the non-poor.

62
Figure 3.17. Health Impacts per Unit of Income in Lima-Callao

I 300 7 1
250

200

150

100

50

0
Base-case scenario "Mid-case'' scenario "High-case" scenario

[=J Poor INon-Poor

Note: The health impacts are indexed t o 100 for the non-poor in the base-case scenario. The health
impact per person is divided by income per person, normalized t o 100.
Source: Larsen and Strukova (2006a)

3.74 The annual cost o f health impacts o f inadequate water supply, sanitation and hygiene i s
estimated at 2.25 billion soles. About 80 percent o f this cost i s diarrheal illness and mortality.
The remaining cost i s associated with the boiling o f drinlung water and the purchase o f bottled
water to reduce or avoid risk o f illness. %s section's analysis focuses on the distribution o f
health impacts.

3.75 Diarrheal prevalence rates in children under five years from the Peru Demographic and
Health Survey (DHS) 2000 were analyzed in relation to poverty incidence for each department
in Peru. For every one percent increase in poverty across departments, diarrheal prevalence
increases by 0.9 percent. The correlation between poverty and child mortality i s even stronger.
For every one percent increase in poverty across departments, child mortality increases by 1.1
percent.56A strong correlation between diarrheal prevalence and child mortality can also be
observed.

3.76 The estimated cost o f inadequate water supply, sanitation and hygiene includes
approximately 1000-2000 diarrheal deaths in chldren under five years o f age. Figure 3.18
presents child mortality rates by living standard quintiles from the Peru DHS 1996 and 2000.
The mortality rate among the poorest 20 percent o f the population was about 5 times hgher than
among the richest 20 percent in 1996 and in 2000.

56
The relationships are estimated by log-linear OLS regression using data from 2 4 departments, and are statistically
significant at 99 percent. Source: Larsen and Strukova (2006a).

63
Figure 3.18. Child Mortality Rate by Living-Standard Quintile

100

80

60

40

20

0
Poorest Second Middle Fourth Richest

IPeru DHS 1996 I3 Peru DHS 2000

Source: Peru Demographic and Health Surveys 1996 and 2000. Child mortality rates are for a
10-year period prior to the survey.

3.77 Figure 3.19 presents the diarrheal prevalence rate in children in 1996. The rate i s more
than two times higher among the poorest population compared to the richest pop~lation.~'

Figure 3.19: Child Diarrheal Prevalence Rate by Living-Standard Quintile


25% 1---- ^_-____I____- _i________il_i_ _ I

I
20%

15%

10%

5%

0%
I Fvorest Second Middle Fourth Richest

Peru DHS 1996


/I !

Note: The diarrheal prevalence rate refers to the percentage o f children with diarrheal illness at
any time during a two-week period prior t o the survey.

3.78 For 2003, it i s estimated that the child mortality rate among the poor i s around 42 per
1000 live births, compared to 17 among the non-poor. This estimate i s based on a national child
mortality rate o f 34 in 2003 and the child mortality rates by living-standardquintiles from the
Peru DHS 2000. Similarly, based on an average child diarrheal prevalence rate o f 15 percent in
2000 (Peru DHS 2000), the rate among the poor i s estimated at 18 percent, and at 12 percent
among the non-poor (Figure 3.20).

57 Diarrhealprevalence rate by living standard quintile was not obtained for Peru DHS 2000.

64
Figure 3.20. Chifd Mortality and Diarrheal Prevalence

Child rnortalrry rate Diarrheal prevalence rate In children US

w mor INon-Poor

Source: Larsen and Strukova (2006a)

3.79 The health impacts per 1000 people are presented in Figure 3.21. The impacts are nearly
three times higher in the poor population than in the non-poor population.” This estimate i s
based on the child mortality rates and the diarrheal prevalence rates in chldren presented in
Figure 3.20, and estimates o f the diarrheal prevalence rate in the population above the age o f
five years.jg There are many reasons why the diarrheal disease burden i s higher in the poor than
in the non-poor population. First, the poor have much lower access to improved water supply
and safe sanitation. Second, hygiene conditions are likely to be worse.

3.80 The difference in health impacts relative to income i s even larger. Health impacts are
more than 10 times higher in the poor than in the non-poor population per unit o f income
(Figure 3.21). T h i s i s because the income o f the non-poor is nearly four times higher than the
income o f the poor.6’

Figure 3.21. Health Impacts per 1000 People and per Unit of Income

1100
1000
900
800
700
600
500
400
300
200
100
0

I Health Impacts per 1000 people Health Impacts per unit of income

Note: Health impacts per 1000 people and per unit o f income are indexed to 100 for the
non-poor population.
Source: Larsen and Strukova (2006a)

58
This i s a larger difference than the difference in child mortality and diarrheal prevalence. The main reasons for this
are that the share o f children in the poor population i s much higher than in the non-poor population, that diarrheal
mortality is largely among chddren, and diarrheal incidence rate is much higher in children than in adults.
59
It i s assumed that the relative difference in diarrheal prevalence between the poor and non-poor population is the
same for the age group 5+ years as for children under-5. Source: Larsen and Strukova (2006a).
60
This i s from t h e same income data used in the urban air pollution analysis.

65
3.8 1 The annual cost o f the health effects o f indoor air pollution from solid fuels i s estimated
at 0.8 billion soles. Around 10 percent o f the urban population and more than 85 percent o f the
rural population use solid fuels indoors (Peru Demographic and Health Survey, 2000).
However, n o data are readily available on the percentages o f the poor and non-poor populations
that use fuel wood. With an urban poverty rate o f about 40 percent, it i s likely that almost all the
10 percent o f the urban population using solid fuels are poor. The poverty rate in rural areas
exceeds 65 percent. Therefore, it is plausible that 20 percent o f the rural population using fuel
wood is non-poor while 65 percent i s poor. If so, then about 43 percent o f the poor population
and 11 percent o f the non-poor population in Peru uses solid fuels. In thls case, based on the
estimated health effects from solid fuel use in urban and rural areas separately, 80-85 percent o f
the total health effects are among the poor population.

3.82 However, the share o f health effects on the poor may be larger, depending on the
characteristics o f wood stoves and ventilation, which may be different in poor and non-poor
households. It i s plausible that poor households are more likely to use more polluting stoves
than non-poor households. Health effects o f solid fuels can also be influenced by the general
health o f those exposed to the pollution. In this respect, the poor may be more vulnerable to
health effects from indoor air pollution.

3.83 The impacts for all the environmental health categories (i.e., urban air pollution, water,
sanitation and hygiene, and indoor air pollution per 1000 people) are nearly 20 percent higher
for the poor than for the non-poor. Relative to income, the impacts on the poor are 4.5 times
higher than on the non-poor (Figure 3.22)

Figure 3.22. Total Health Impacts per 1000 People and per Unit of Income

500
450
400
350
300
250
200
150
100
50
0
Impact per 1000 people Impact per unit of income

1 I3 Poor
I
Non-Poor

Source: Larsen and Strukova (2006a)

Conclusions

33 4 The annual costs o f Peru’s environmental pollution, degradation o f natural resources,


natural disasters and inadequate environmental services are estimated at 8.2 billion soles,
equivalent to 3.9 percent o f GDP in 2003. This represents a substantial loss for society,
particularly for the poor. The estimates in thls chapter indicate which areas o f the environment
are associated with the most negative impacts on society; however, an evaluation o f the benefits
and costs o f interventions i s needed to identify priority actions. Chapter Six provides such an
evaluation for the major environmental health issues analyzed in this chapter. For natural
resource degradation and natural disasters, the benefits and costs o f interventions can be
properly assessed only at very local levels; consequently, additional data and surveys are
needed. Similarly, an analysis o f the benefits and costs o f further reducing exposure to lead

66
requires an assessment o f remaining sources o f lead exposure, n o w that lead i s being eliminated
from gasoline.

67
CHAPTER 4

REDUCING DISEASE AND DEATH


CAUSED BY ENVIRONMENTAL DEGRADATION

The health impacts of environmental pollution are the largest single source of
environmental damages. Interventions to reduce such damages have been evaluated for
water supply and sanitation, indoor air pollution and urban air pollution. The analysis
shows that water supply and sanitation improvements in rural areas can be justlfied on
environmental-economic grounds, especially when time saving is taken into account.
Handwashing programs to improve hygiene have benefts substantially greater than
costs, as do programs to increase drinking water disinfection. For indoor air pollution,
the benefts of movingflom unimproved stoves to improved stoves or LPG are generally
higher than the costs, while those of moving from improved stoves to LPG are less
justiJiable. For urban air and other pollution, a range of transport-related measures is
recommended, including egective inspection and maintenance programs, retrofitting
high-use vehicles with better particulate-control technology and low-sulfur fuels, and
action on sources of lead other than gasoline. I n addition, attention should be given to
modernizing the bus fleet to larger, cleaner buses and possible phase-out of two-stroke
engines in “baby taxis ”. For stationary sources, introducing abatement technology may
be justrJied for a number of industries and plants, but a more detailed assessment is
needed to decide where and when.61

Introduction

4.1 O f all the impacts o f environmental degradation, those related to health are the most
significant. The study o f the costs o f degradation carried out as part o f this review estimates the
annual damages from environmentally related sources at S/.8.2 billion (US$2.45 billion). Over
70 percent o f that-around S/.5.85 billion (US$1.75 b i l l i o n F i s attributable to environmental
health, arising from poor quality water supply, sanitation and inadequate hygene, outdoor and
indoor air pollution, and lead (Pb) exposure (Figure 4.1).

4.2 Given the costs o f environmental degradation, the prima facie case for loolung carehlly
at measures to reduce environmental health damages i s strong. However, before particular
interventions can be recommended, the measures’ costs and benefits need to be compared in
terms o f reduced damages.

4.3 This chapter (a) looks at the environmental health damages related to urban air
pollution, indoor air pollution, and water and sanitation; and (b) compares reductions in such
damages from various actions relative to the costs o f undertaking these actions.62I t concludes
with some recommendations for government policy reforms in this area in the short, medium
and longer terms.63

61 This chapter was prepared by Ani1 Markandia, Ernest0 Sinchez-Tnana, and Yewande Awe. The chapter draws
heavily o n background documents prepared by Bjom Larsen and Elena Strukova (2006a) and ECON Analysis
(2005).
A s lead in gasoline is phased out, further assessment o f other sources o f lead exposure is needed to evaluate the
benefits and costs o f mitigating measures.
63 I t is also important to take into account who bears the costs and who benefits from the actions. If the state bears the
costs o f providing health care, which is the case to a significant extent, then the actions recommended here will also
provide financial benefits to the government. T o the extent that individuals themselves bear the costs o f the policy
reforms recommended here. there will be direct financial benefit to them.

68
Figure 4.1. Cost of Environmental Health Damage in Peru (Billion Soles per Year)

I 2.5 ,I
2.0 -.

1.5 -

1.0 --

0.5 -

0.0

I I
_I

Water supply, sanitation Outdoor air pollution Lead exposure hdoor air pollution
and hygiene

Source: Larsen and Strukova (2006a)

Urban Air Pollution

4.4 Because o f i t s adverse impacts on health in the form o f premature deaths and illnesses,
air quality i s one o f the most widespread and serious environmental problems in Peru’s urban
centers. The major air pollutant o f concern to health in Peru i s particulate matter (PM) and
associated small particles created from chemical reactions involving sulfates and nitrates. Lead
(Pb)-as an air pollutant and from other sources such as paint, water pipes, and food-is a
major health threat. Other pollutants, including sulfur dioxide and hydrogen sulfide, have
become local health threats in sites with fixed pollution sources, such as smelters in the cities o f
L a Oroya and 110, or the fishmeal plants in the city o f Chimbote (Bemales, 2006)

Health Effects of Lead

4.5 The case for eliminating lead in fuels and other sources i s overwhelming on health and
other social grounds. It was established as far back as the 1980s for the U S and has been
repeatedly confirmed in studies in many countries, some much poorer than the U S (Barde and
Pearce, 1991). Larsen and Strukova (2006a) confirmed these calculations for Peru. As a result,
the decision to ban lead in gasoline in Peru effective January 2005 (following a long period o f
phase-out since the early 1990s) should be applauded. As a result, lead in the air i s down
substantially overall since the early 1990s, although levels in Lima have been constant during
the period 2000-2004.

4.6 The impacts o f the ban on lead in gasoline will take some time to be felt, since
substantial amounts o f lead have accumulated in the soil and water, and the impact o f these
deposits i s significant. The remaining problem to be addressed i s that o f lead from other
materials such as paints, food cans and some food and water sources (including lead pipes).
Action to address these sources i s important. In most cases, it would pass the benefit-cost test.
However, this analysis has not been done in Peru. The reason for taking this view i s that similar
actions in OECD countries have very high benefit-cost ratios. Even allowing for Peru’s lower
living standards, it i s highly unlikely that the costs would exceed the benefits. However,
research to establish t h s i s warranted, to make the case in public.

Health Effects of Particulate Matter Pollution

4.7 Particulate matter that has a diameter size less than 2.5 microns (PM2.5) has the most
significant effects on health. Urban air pollution i s responsible for 3,900 premature deaths

69
annually in Peru. In addition, such pollution accounts for the loss o f approximately 65,000
disability adjusted l i f e years (DALYs) annually (Table 4.1).

Table 4.1. Estimated Health Impacts of Urban Air PolIution


from Particulate Matter

I Health End-Points ~ Total CasesNear 1 Total DALYsNear I


Premature mortality I 3,900 29,253
Chronic bronches 3,812 8,386
Hospital admissions 12,834 205
Emergency room visitsioutpatient hospital visits ~ 25 1,765 1,133
Restncted actinty days 43,347,360 13,004
Lower respiratory illness in children 5 33,45 7 3,467
Respiratory symptoms 137,957,686 10,347
I
GRAND TOTAL OF DALYsNEAR 65,796

4.8 The problem o f urban air pollution i s most critical in the country’s industrial corridors,
such as Lima-Callao, which accounts for almost 75 percent o f the estimated cost o f health
impacts o f urban air pollution in Peru. Furthermore, the pollution levels in all zones exceed the
concentration threshold o f 7.5 ugim’ (annual average) set by the World Health Organization
(WHO, 2002a). In comparison to other countries in the region, the levels o f air pollution in parts
o f Lima are higher than in Mexico City and Santiago, where air pollution i s also severe. Ax
pollution levels in Lima are considerably higher than in cities such as Los Angeles, Tokyo and
Rome, which have larger industrial and transportation sectors than Lima and have successfully
reduced ambient concentrations o f air pollutants (Figure 4.2).

Figure 4.2. PMlO Average Annual Concentrations in Selected Cities (ug/m3)


WHO Standard i s 7.5 ug/m3

Source: The World Bank, 2005c

Valuation of Mortality Impacts of Environmental Health

4.9 A key variable in the valuation o f environmental health impacts i s the valuation of
premature mortality. Hence, valuation issues merit some discussion. The values associated with
mortality are derived from either a human capital approach or a ‘willingness to pay to reduce

70
risks approach.’ In the ‘human capital’ approach (HCA), the value o f a lost life is measured in
terms o f the discounted earnings the person would generate over a lifetime. The second
approach values a loss o f life in terms o f the willingness to pay to reduce the risk o f death. For
example, if a group o f 100,000 persons i s each willing to pay US$10 to reduce their individual
risk o f death by 1:100,000, then the group will collectively pay US$l million and the measure,
if enacted, will save one life. Consequently, the value o f a l i f e saved i s put at one million U S
dollars. Such a value i s also referred to as the value o f a statistical life (VSL), emphasizing the
fact that no specific life has been saved.

4.10 For Peru, the H C A value o f a life i s estimated at around 240 thousand soles. At 0.3 1
dollars for one sol, this amounts to US$74,000. The other (VSL) approach i s derived from a
comparison with V S L values in the United States and other high-income countries, combined
with an “income elasticity” o f 1.0 (implying that the VSL in a country with an income 50
percent lower than the U S would also be 50 percent lower). The range o f VSL values in the U S
and other industrialized countries i s US$1.5-2.5 million (Mrozek and Taylor, 2002). Based on
these values, the estimated V S L for Peru lies in the range o f 390,000 to 650,000 soles.64 In
general, the H C A approach i s considered as a lower bound for the value o f a premature death.

Interventions to Reduce Urban Air Pollution

4.1 1 As part o f the preparatory work for the Peru CEA, a study was commissioned on urban
air pollution control, which looked at 12 options (ECON Analysis, 2005). Evaluating different
options that reduce urban air pollution i s difficult, as data on the responsiveness o f different
agents to the range o f possible measures are hard to gauge. Therefore, judgments on the optimal
selection o f instruments w i l l rely on a combination o f cost-benefit analysis and experience in
the application o f these instruments in other countries. The following options were considered

1. Introduce low-sulfur diesel.


2. Encourage use o f gasoline cars at the expense o f diesel through various tax incentives.
3. Convert some gasoline/diesel cars to natural gas.
4. Convert some vehicles to ethanol or biofkel.
5. Develop a new public transport system in Lima.
6. Provide tax incentives to scrap older high-use cars (e.g., taxis).
7. Strengthen inspection and maintenance programs.
8. Retrofit catalytic converters on cars and particle control technology on diesel vehicles.
9. Ban imports o f used cars for taxi use.
10. Ban use o f diesel cars andor two-stroke engines as taxis.
11. Implement various city planning interventions such as “green traffic light waves” and
bike lanes.
12. Introduce measures to reduce emissions from industry sources.

4.12 Most o f these options are either in the process o f being implemented or considered by
the authorities. I t i s also important to note that some o f them may not primarily be considered
for environmental reasons, for instance option 5. More generally, most policies have
implications for the welfare o f transport users and other affected sectors (e.g., an increase in the
price o f cars or a limitation on their use). For such options, a full cost-benefit analysis that takes
into account all benefits and costs should be carried out. T h i s has not been done; hence, the
analysis presented here i s only a partial input to the final decision regarding which instruments
to deploy.

64 The lower value o f mortality can misleadingly be seen as implying that a life in Peru i s worth less than one in the
EU o r US. This i s incorrect in that (a) we are not referring to a specific l i f e and (b) i t is really a willingness to pay to
reduce a risk o f death, which i s genuinely lower in poor countries.

71
4.13 As a general guide in evaluating each o f the options, the damage costs associated with a
ton o f emissions o f P M and other particles can be compared to the cost o f a specific option for
abating that ton. The background study conducted as part o f this review estimated damages per
ton fiom PMlO (Table 4.2). The cost ranges are wide, with the h g h e s t costs arising from mobile
sources (23,00&85,000 soles per ton, or US$7,00&25,000 per ton)65. Costs from stationary
sources are around half (40%) o f those from waste burning. It should be noted that the estimated
damage cost per ton o f secondary particulates i s just as hgh as the cost per ton o f particulates
from mobile sources. It should also be noted that these figures are for 2005. As the population
grows and as real incomes rise, these costs will increase. This has to be taken into account when
comparing benefits and abatement costs.

Table 4.2. Estimated Damages Associated with PMlO Emissions for Various Sources in
Lima-Callao

Source: ECON Analysis (2005)

L o w sulfur diesel

4.14 The Ministry o f Energy (MINEM) has determined that the sulfur content o f diesel fuel
in Peru should be reduced from today’s 5,000-10,000 parts per million (ppm equivalent to 0.5-
1 percent) to 50 ppm (equivalent to 0.005 percent) by the beginning o f 2010. For imported
diesel, the sulfur limit i s 2,500 ppm today. T o reduce the sulfur content to 50 ppm will require
substantial investments in Peru’s refineries: MINEM has indicated that the two largest refineries
w i l l have to invest around US$300 million. The intervention would reduce PMlO directly by
about 1,425 tons and sulfates by about 715 tons. Therefore, the average cost o f the reductions
would be about US$18,000 (58,000 soles), which i s around the same value as the mid-point o f
the l o w and high damage costs; t h s i s on average 54,000 soles, between 24,000 soles in the low
case and 85,000 soles in the high case (Table 4.2).

4.15 These calculations support the program. First, the higher values, based on a VSL
approach, are probably more appropriate for Peru. Second, by the time the program i s effective,
the damage costs will have increased because o f economic and population growth. Third, the
damages reported are based on emissions from Lima-Callao. The measures introduced w i l l
generate benefits in other cities, raising the estimated figure for benefits by 60 percent. T h i s
would make the case much stronger. As a measure, it i s relatively easy to introduce and has
relatively low impacts on the poor.

65 One reason for the wide range i s the problem o f deriving an inventory o f emissions for Peru. The data vary by
source (CONAM versus PISA), resulting in very different estimates o f overall emissions and, hence, overall
damages. The figures given in Table 4.2 are the averages f?om the two sources. The other reason for the differences i s
the valuation o f mortality: the H C A versus VSL approaches discussed later. T h i s i s reflected in the difference
between the low and high cases in the table.

72
Encourage use o f gasoline cars at the expense o f diesel cars through various tax incentives

4.16 The present taxation system favors diesel over gasoline; however, diesel cars are more
polluting as far as P M emissions are concerned. Detailed analysis o f the impacts o f a switch in
taxes in favor o f gasoline has not been carried out for Peru. The taxation o f these fuels has a
dynamic in industrialized countries toward reducing the previous advantage that favored diesel.
Furthermore, the justification that applied in the UK and other EU countries to make t h i s shift
would apply to some extent in Peru. A more detailed study would be needed to assess the likely
benefits in terms o f air quality. Against these, account would have to be taken o f the fact that
increases in diesel prices lead to higher expenditure increases for poor households (Kojima,
2001). T h i s would lead to the need to introduce measures to mitigate these negative
distributional effects (e.g., compensating use o f diesel in mass transport and agriculture).

Conversion o f gasoline/diesel cars to natural gas

4.17 Natural gas in the form o f compressed natural gas (CNG) has been used as a vehicle
fuel for years. Compared to low-sulfur diesel (<50 ppm) P M emission would be virtually
eliminated for smaller CNG-dedicated vehicles and reduced by more than 70 percent for
dedicated heavy-duty vehicles (Cleaner Vehicles Task Force, 2000). N O x emissions would be
reduced by 85-90 percent, and SO2 emissions would be almost eliminated.

4.18 Notwithstanding these factors, the conversion o f gasoline vehicles to CNG i s not an
attractive environmental option when all factors are taken into account. Although existing
gasoline vehicles could be converted to CNG using conversion kits that cost around US$800-
1,500, there would be almost no direct benefits through P M emission reductions, since gasoline
cars have almost no P M emissions. In addition, the indirect P M reductions through reduced SO2
and N O x emission reductions would be very low. Thus, converting gasoline cars to run on CNG
i s not an appealing P M emission reduction option.

4.19 Converting existing diesel vehicles to natural gas would practically eliminate P M
emissions fiom these vehicles. However, as a rule, this i s not economically attractive, although
it can be a viable option for high-usage vehicles such as taxis and light duty vehicles. Still,
conversion i s relatively costly for diesel engines and the remaining lifetime o f the vehicles must
be carefully considered. Since the age o f the car fleet in Lima i s rather high, the cost-benefit
ratio for this option might not be so favorable. For large buses, conversion i s also not likely to
be an option, due to hgh conversion costs and/or the estimated short remaining lifetime o f
many o f the buses.

4.20 CNG appears more favorable for new vehicles like taxis, light duty vehicles, large buses
and other heavy-duty vehicles. CNG buses are being considered for the new public transport
system in Lima. According to the Clean Air Initiative (2005), P M reductions could be 60 to 97
percent compared to the present conventional diesels with high-sulfur fuel. However, when low-
sulfur diesel (<50 ppm) i s introduced in 2010, emissions reductions associated with CNG use
would be much less than this 60 to 97 percent figure-see below.

4.21 A cursory assessment o f the costs and benefits o f introducing new dedicated CNG buses
in Lima shows the calculations to be finely balanced and dependent on which cost figures apply.
Data fiom local sources indicate incremental investment costs o f US$8,000-20,000 for the
purchase o f a CNG bus compared to a diesel-fueled one. T h i s g v e s annual costs o f US$940-
2,345 per bus. On the other hand, data from Sierra Research (2000) indicate annual investment
costs in California o f around US$4,100-8,200. Given that CNG prices are likely to follow
international oil (and natural gas) prices, no price advantage in fuel terms is built into the
calculations.

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4.22 Emission data from 2000 for Lima (Infras, 2002) show that urban buses emitted a total
o f 2,985 tons o f P M in 2000. Assuming 20 percent o f this i s reduced because low-sulfur diesel
i s introduced, and apportioning this across all buses in Lima (25,000) indicates that each bus
emitted around 0.096 tons P M that year. I t i s being assumed here that 80 percent o f these
emissions are removed if a bus i s replaced by a CNG bus. This yields annual benefits o f around
US$1,690 per vehicle.

4.23 Benefits from reductions o f nitrates should also be accounted for. It i s being assumed
here that 90 percent o f N O x emissions are removed from each bus that runs on CNG compared
to low-sulfur diesel, and that they have the same share o f the nitrates formed by the N O x
emissions. This results in an annual benefit o f around US$l,OlO/bus. Thus, total annual benefits
from using CNG instead o f low-sulfur diesel are US$2,700/bus.

4.24 This i s lower than the estimated total annual costs o f CNG introduction reported in
California data, but slightly higher than the costs o f CNG introduction provided by local
sources. However, the latter must be considered surprisingly low, since much o f the equipment
i s internationally traded.

4.25 If low-sulfur diesel i s not introduced, the situation changes considerably. The direct
benefits from P M reduction would then be around US$2,100/vehicle annually plus the above
nitrates reduction, giving an annual total o f US$3,llO/bus. The calculations would then also
have to take into account reduced SO2 emissions and the consequent formation o f sulfates.
Assuming that SO2 emissions would be eliminated, the annual benefit o f this would be
US$1,246/bus. The total benefits from running on CNG would then be around US$4,356 per
vehicle per year. Thus, the benefits o f introducing CNG would be slightly larger than the lower
bound o f the higher cost interval above.

4.26 The preceding figures suggest that, if low-sulfur diesel i s introduced, the case for CNG
i s much weaker, although there may still be one depending on how a more detailed assessment
works out. At present, there i s also substantial uncertainty regarding the costs o f introducing and
providing CNG in Peru. These issues have to be cleared up before a firm decision can be made.

Conversion to ethanol or biofuel

4.27 Ethanol and biodiesel are biofuels used as vehicle fuels in many countries, and they are
expected to be used in Peru. A new law requires 7.8 percent o f ethanol to be blended in the
gasoline, and up to 5 percent o f biodiesel to be blended in the diesel (CONAM, 2005). There are
some investments under way for the production o f ethanol, and the production o f biodiesel i s
being considered.

4.28 For ethanol used instead o f diesel, data from Sweden show some reduction in emissions
o f N O x and P M (Akzo Nobel). However, a detailed quantitative case on these grounds for
ethanol is hard to make; consequently, ethanol i s not considered here as a serious option for
reducing local air pollutants such as PMlO. There may be a case for ethanol on cost grounds;
however, that i s a private matter involving considerable controversy. At present, gasoline prices
in Lima are around US$1.80/gallon, which compares with some estimated production costs o f
around US$1.6&2.50/gallon (ECON, 2005). Since P M and SO2 emissions from gasoline cars
are almost zero today, local environmental benefits from this option for such vehicles would be
very low.

4.29 The case for biodiesel has three components: the potential private cost savings, the
savings in greenhouse gas emissions and the benefits o f reduced particulate emissions. O f the
three, the last i s probably the least important, although considerable effort has gone into
estimating such benefits. USEPA has surveyed more than 80 prominent biodiesel emissions

74
studies (see www.eva.gov/otaa/models/biodsl.htm), and the level o f such emissions compared
to conventional diesel has been estimated (Table 4.3).

4.30 According to these calculations, P M emissions could be almost halved if the vehicle
r u n s entirely on biodiesel. However, the reductions are considerably smaller if biodiesel i s
blended 20 percent with ordinary diesel. N O x emissions tend to increase, but sulfates will be
reduced at the same rate as biodiesel i s blended with ordinary diesel. T h i s shows that biodiesel
has less impressive environmental performance than CNG. P M emissions are not reduced as
much as for CNG (70-100 percent o f CNG reductions) and NOx-emissions actually increase
compared to an 85-90 percent reduction for CNG. Only sulfates (S02) show the same
performance for both CNG and biodiesel. Thus, with respect to PM, CNG seems to be a better
alternative than biodiesel. However, if the costs o f production and transportation are low
enough, then biodiesel could be a cost-efficient option for reducing P M emissions.

Table 4.3. Average Biodiesel Emissions Compared to Conventional Diesel.


Percentage Change Compared to 100 Percent Petroleum Diesel

PM -47 -12
NOx +10 +2
Sulfates -100 -20

4.3 1 The benefits o f P M reductions are estimated at US$0.23/gallon and US$O.O57/gallon


for the 100 percent biodiesel and 20 percent biodiesel cases, respectively. In addition, benefits
from reduced SO2 and sulfates formation should be added (US$0.20 and US$0.05 for the two
cases, respectively). In addition, the environmental costs for increased N O x and nitrates
emissions should be subtracted. The latter are US$0.17 and US$0.08 for the two cases. T h i s
yields total benefits o f US$0.26 and US$0.03, respectively, for a 100 and 20 percent blend o f
biodiesel in ordinary diesel. As shown below, this may be relevant, but it i s likely to be dwarfed
by the difference in private costs o f production.

4.32 The costs o f producing biodiesel vary substantially among countries and regons. W h i l e
cost data for total biodiesel production in Peru are not available, there are estimates from the
US. Radich (2005) reports that production costs based on soybean oil were US$2.54/gallon in
2004-2005, and based on yellow grease, they were US$1.4l/gallon. These compare to a
production cost o f ordinary diesel o f US$0.67/gallon in the U S in the same period. The net
diesel price in Lima in June 2005 was US$1.84/gallon. If these cost estimates are representative
for Peru, then biodiesel based on yellow grease might be competitive with present oil prices,
while biodiesel made o f soybeans has a cost disadvantage o f US$0.70/gallon compared to
ordinary diesel.

4.33 The above figures indicate that the case for biodiesel i s only marginally affected by
urban pollution considerations, and that private costs will dominate the decision. Only cost
figures for biodiesel production from Peru can give the final answer to this.

New Dublic transport system in Lima

4.34 There are comprehensive plans to restructure Lima’s entire public transport system.
Lima’s present bus route system, which consists o f a very detailed grid o f small- and medium-
sized buses, i s intended to be transferred into nine new, main lines. Special corridors will be
made for these lines, including new stops where passengers can change routes. This should
reduce dependence on smaller minibuses so that these types o f vehicles can be used as feeders,
having passengers transfer to larger buses to go to Lima.

75
4.35 Fully developed, this system could lead to the scrapping o f 15,000-20,000 small buses.
The new buses could be run on natural gas.

4.36 The background for this plan i s to improve the quality o f the public transport system
and o f the environment. The fares are not supposed to be increased, but remain at 0.5-1.5 soles.

4.37 Total costs o f the plan are estimated at US$34.5 millionflun, including new
infiastructure and the scrapping o f old buses. There are preparations for a tendering process for
one line (Blue Line), which should lead to scrapping around 4,000 old vehicles. Even if new
buses run on diesel, the P M emissions would be substantially reduced, because o f the very high
emissions o f the old, existing buses. If the new buses run on natural gas, P M emissions would
be practically eliminated.

Tax incentives to scrap older high-use cars (ex., taxis)

4.38 Today, a large share o f the high-use car fleet (e.g., taxis, small buses and lorries that are
frequently used within Lima-Callao) consists of old, relatively high-emitting vehicles.
Scrapping these and replacing them with new, more energy efficient and less polluting vehicles
could contribute substantially to improving the city’s air quality.

4.39 These vehicles could be removed by setting rather strict emission standards and
imposing strict vehicle control, with those not complying banned from operating (see next
section for an analysis o f this). Additionally, for distributional reasons, it might be useful to
supplement this approach with incentives for owners o f such vehicles to voluntarily scrap them.

4.40 A permanent scrapping program could be designed as a deposit-refund system, where


buyers o f new or used imported vehicles pay a deposit that i s refunded to the owner when the
vehicle i s delivered to an authorized agency or company dealing with car wrecks. Such schemes
have been in operation in many European countries and are working very well. The deposit
would be reflected in the prices o f used cars on the domestic market, and form a price floor for
the used cars. However, such a program would only have a long-term effect, since the average
age o f vehicles in Lima i s over 12 years. Moreover, the costs o f enforcement for such a scheme
could be quite high in a country like Peru. Still, t h s scheme i s worth considering further for its
positive long-run environmental effects.

InsDection and maintenance programs

4.41 Periodic inspections o f the existing vehicle fleet would contribute to reduced emissions
and improved air quality if such inspections result in better maintenance and the eventual
scrapping o f old, heavily polluting vehicles. Modern vehicles depend on properly functioning
components to keep pollution levels low. Minor malfunctions in the air and fuel or spark
management systems can significantly increase emissions. Major malfunctions can cause
emissions to skyrocket. According to OECD (1999) and the Clean Air Initiative (2005), a
relatively s m a l l number of vehicles with serious malfunctions frequently cause most o f the
vehicle-related pollution problem. Effective inspection and maintenance (I&M) programs are
essential to identify these problem-vehicles and ensure their repair or scrapping. Unfortunately,
so far, such controls have been lacking in Peru. Although there were emissions regulations on
paper for vehicles, very few checks were carried out. Only 12,000 vehicles have been inspected
since 2001, and there have been no fines.

4.42 The need for a more rigorous enforcement regime i s clear, and Peru has decided to
implement a new vehicle inspection and maintenance program for the entire Peruvian vehicle
fleet, starting with Lima in April 2006 and becoming countrywide by 2007 (see CONAM,
2005).

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4.43 The Clean Air Committee (2004) has estimated that the new program will result in
emission reductions from buses and heavy-duty vehicles o f almost 2,900 tons o f PMlO in Lima
in 2010. These reductions will increase to almost 4,600 tons in 2020 and 5,900 tons in 2025 in
Lima-Callao. These are considerable reductions, taking into account that total emissions from
mobile sources today are estimated at a little more than 7,000 tons. The emission reduction i s
high because many vehicles have not been tuned or repaired for years. I t i s likely that the effects
o f other measures like the introduction o f low-sulfur diesel are not accounted for in the
Committee’s estimate. The Lima program i s having some difficulty in i t s startup phase, so i t s
effectiveness remains to be seen. However, it i s obvious that this program has great potential to
substantially reduce emissions.

4.44 The Clean Air Committee (2004) estimates the specific abatement costs at
US$4,096/ton o f PM10. Ths cost estimate i s significantly lower than the costs o f similar
programs in Europe. T h i s estimate i s lower than the estimated range o f the benefits o f emissions
reductions at US$6,000-28,000 per ton o f PM10, indicating that this intervention i s socially
profitable for the society.

Retrofit catalytic converters on cars and/or retrofit particulate-control technologv for diesel
vehicles

4.45 Buses and trucks operating on diesel are responsible for a large part o f the P M
emissions from mobile sources in Lima. New vehicles emit less than old buses, but scrapping
them i s a costly alternative. Instead o f removing these vehicles from the fleet through various
means, retrofitting old trucks and buses with particulate-control technology could be an option.

4.46 The technology for retrofitting i s really only effective with low-sulfur fuel. Hence, this
measure will have to wait until low-sulfur diesel i s introduced in Peru in 2010.

4.47 Regarding costs and benefits, the figures look quite encouragmg. Costs were around
US$5,000-17,000 per vehicle in 2000 (Cleaner Vehicles Task Force, ZOOO), but estimates are
that they have fallen significantly by 2005 (to US$2,500-3,500). On the benefit side, i t i s
difficult to predict how the vehicle fleet w i l l develop by 2010. As a rough guide, it i s being
assumed here that year 2000 P M emissions from buses will be reduced 20 percent by 2010
through the use o f low-sulfur diesel. On this basis, emissions per vehicle w i l l be approximately
0.1 todyear. Reducing these by a maximum o f 90 percent (which the retrofitting would
provide) gives an emissions reduction o f 0.09 ton and a benefit o f US$1,980 per vehicle
annually. If device cost has dropped to US$3,000, the annual costs are around US$350, which i s
far below estimated benefits. The investment cost would have to be more than US$17,000 for
this option to have a negative benefit-cost ratio, which i s highly unlikely.

4.48 These benefit-cost calculations are based on average emissions per vehicle. If the most
polluting vehicles are removed from the fleet through other measures (for instance an I&M
program), benefits from retrofit technology may be substantially lower. However, even allowing
for this, the simple calculation presented shows that retrofitting P M control technology after
2010 should have a positive benefit-cost ratio.

Ban on imports o f used cars for taxi use

4.49 According to available statistics, more than 85 percent o f all imported passenger cars
and station wagons in Peru in 2003 were used vehicles. T h i s has been encouraged by the
authorities, who have reduced import duties for used cars compared to the duties for new ones.
This was done for social reasons, enabling average-income families to have their own car.

4.50 The imported cars have often been old, with high mileage and high pollution emissions.
Today, the import o f diesel passenger cars that are more than two years old i s not allowed, while

77
gasoline cars can be up to five years old. Still, the imported cars have high mileage; thus, their
catalytic converters are not functioning properly, resultingin relatively high emissions o f PMlO
and other harmful substances. Therefore, the municipality o f Lima-Callao i s considering a ban
on the use o f imported used cars as taxis. T h i s could result in lower P M l O emissions, since most
o f these cars have diesel engines.

4.51 Bans are a more drastic alternative to adopting stringent I&M requirements on all
imported vehicles to ensure they have a functioning catalyst, as was done in Poland. Another
alternative i s to impose higher taxes on such vehicles; Romania and Hungary are examples o f
countries using that approach. OECD (1999) argues that all three o f the primary approaches-
stringent emissions requirements ban on imports; or heavy taxation on imported, used
vehicles-can be successful if designed properly.

4.52 In Peru, for social reasons, it seems difficult for the authorities to impose special taxes
on the import o f used cars for taxi use or other purposes. The I&M program currently being
introduced could pay special attention to imported used vehicles to ensure compliance with the
new emission standards. If the I&M program i s not effective, a ban on imports o f used vehicles
for taxi use could be an effective solution. Taxis are high-usage vehicles, so measures targeted
towards them could be efficient. It has not been possible here to estimate the emission reduction
that could be acheved through this measure.

Ban on use o f diesel cars and/or two-stroke engines as taxis

4.53 Most passenger cars employed as taxis are diesel fueled. In poorer areas o f Lima-
Callao, the use o f three-wheeled, two-and-four-stroke gasoline motorbikes as taxis i s common.
These vehicles are heavy emitters o f PM, both because o f the high emissions per kilometer
driven and their high annual mileage. Therefore, removing these vehicles from use could yield
substantial environmental benefits.

4.54 In Dhaka, Bangladesh, similar measures have been considered. In Delhi, India, a
progressive replacement o f two-stroke motorbike taxis with gas-fueled ones has been very
effective. T h s type o f vehicle (so-called "baby-taxis") i s a major source o f PM, partly because
o f incorrect use o f lubricant and excessive use o f the wrong type o f lubricant, called straight
mineral oil. Because commercial two-stroke engine three-wheel vehicles contribute significantly
to particulate emissions, Dhaka's ESMAP program, "Reducing Emissions from Baby-Taxis in
Dhaka," included the education o f drivers and owners o f such vehicles. This educational
programming consisted o f training mechanics, a "baby-taxi" auto clinic, meetings,
dissemination o f information, and informational meetings with auto mechanics and gasoline
station owners who regularly come into contact with drivers o f these vehicles. The program also
sought to restructure the market for lubricants through both private voluntary action and
government policy reform.

4.55 An outright ban on diesel cars and/or two-stroke engines as taxis would be a rather
dramatic action, since these vehicles would be forced out o f traffic in a relatively short time.
However, implementing the program gradually over a 3-to-5 year period, following Delhi's
example, i s a real option and should be considered seriously, along with an education program
like the one introduced in Bangladesh.

Various city planning interventions

4.56 Various steps to promote the use o f bicycles instead o f cars could contribute to reducing
emissions and, indeed, there are several plans for promoting bicycle use in Lima. Several
positive experiences with such measures can be cited from around the world. For example, the
experiences o f some local communities in California are encouraging (CaVEPA, 2005). Up to

78
20 percent o f the residents o f some communities go to work by bicycle, and 41 percent consider
the bicycle their primary mode o f transportation.

4.57 CaliEPA (2005) claims that the promotion o f bicycling has been a cost-efficient
measure to reduce emissions o f PMlO and other h 6 l substances. For each percent
replacement o f light-duty vehicle trips by bicycle trips, PMlO emissions are reduced by a total
o f 0.65 tons/day in all the California communities that have promoted bicycling. People
choosing to pedal rather than dnve usually replace short automobile trips that are
disproportionately high in pollutant emissions.

4.58 Experiences from California and other areas show that on-street bike lanes along
principal roads raise bicycle usage by providing official accommodation for the needs o f
cyclists and addressing concerns about their safety. Nationally, US cities with at least one mile
o f bike lane for every three miles o f arterial roadway have 3 to 10 times higher average bicycle
commuting rates than cities with lesser ratios (CaVEPA, 2005).

4.59 Thus, various measures to promote bicycle use in Lima, notably construction o f bike
lanes, should be considered to see if this could be a cost-efficient measure to reduce P M
emissions, although t h s approach may not be as successful there, due to the high level o f
outdoor pollution. An assessment should be made o f the impact o f various factors, including
studying commuting patterns o f various population segments, lengths o f average trips, areas or
routes where bike lanes could be efficient to promote bicycling, the kind o f transport mode that
increased biking would replace, the costs o f establishing bike lanes and related measures.

Measures addressing emissions from industry sources

4.60 Several industry and non-industry sources emit PM. Data are not available on emissions
and abatement costs for the industry plants in Lima. International studies show that the costs o f
P M abatement tend to be highly site-specific; furthermore, those costs and are generally not
precisely known until an installation i s complete (Rabl, 2000). However, international
abatement cost data may give some indications o f the extent to which actions, mostly end-of
pipe measures, may be cost efficient (Table 4.4).

4.61 Most o f the industries for which costs have been estimated internationally are
represented in the Lima-Calla0 area. All these abatement costs fall within the range o f the
estimates for the damage costs for stationary sources (US$7,OOO-l6,00O/ton) that are presented
in t h i s analysis. P M and SO2 controls sometimes yield mercury (Hg) control as a co-benefit
(Sobin, 2004) (Table 4.4).

4.62 One industry not represented in the international estimates o f abatement costs i s cement,
which i s by far the largest stationary source o f P M emissions in Lima-Callao. Ths generates
emissions o f PM, N O x and S02, among other substances (Portland Cement Association, 2005).
Rabl (2000) estimates abatement costs for retrofits o f existing lulns to be between US$27,000
and US$213,000 per ton o f P M reduced; this i s based on experiences with various retrofits in
Belgium and France. The large cost interval i s due partly to different abatement levels. The
larger the emissions reductions that are achieved, the lower the costs per ton. However, Rabl
(2000) also cites some Dutch reference values o f US$3,000 per ton o f P M reduced, which i s
based only on a limited number o f existing Dutch industrial operations and thus may not be
representative.

4.63 These estimates show that actions to curb P M emissions from cement production may
be cost efficient. However, a more detailed investigation i s needed to find out where the
measures should be introduced and at what level o f abatement.

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Table 4.4. Average Abatement Costs for P M in Some Industries.
US$/TonP M Reduction

I Power production I 13,005 I


Eelglass I 2,747 I
Petroleumrefining 6,745
Paper production 7,725
I Chemicals I 1,627 I
I Metals I 1,202 I
Mining 2,747

Ranking of Urban Air Pollution Control Options

4.64 Ranking options along a cost-effectiveness curve-to show how much reduction each
option can make and at what cost per ton-provides the policymaker with a clear description o f
the complex analysis needed to evaluate different alternatives (Figure 4.3). Unfortunately, this
cannot be carried out for all options. O f the 12 measures reviewed in this section, five can be
analyzed in this way. They are (a) introduction o f l o w - s u l k diesel; (b) inspection and
maintenance programs; (c) retrofit particle-control technology; (d) a shift, in due course, from
low-sulfur diesel to CNG; and (e) reduction o f emissions from industry sources.

4.65 Estimates have been made o f the annual reductions in emissions that can be expected
after 2010 from each o f these sources. To avoid double counting, each action has been adjusted
for the effects o f the others. The reductions they estimate and a best estimate o f the cost per ton
for that reduction are reported below (Table 4.3). The resulting cost-effectiveness curve has then
been estimated (Figure 4.3). The same curve also presents an average damage estimate over all
mobile sources o f PM emissions o f US$16,000, which i s the average o f the l o w and high
estimates for mobile sources (Table 4.4). A much lower figure o f US$8,000 applies for
stationary sources, and this should be taken into account for when looking at industry
reductions.

4.66 The data show that the retrofit for particle control, the I&M program and reductions in
industry sources are well below their respective damage cost estimates. The adoption o f low-
sulfur diesel i s not below the average damage costs. However, as argued earlier, it i s probably
justified because (a) the higher estimate o f damages i s US$25,000 and i s more likely to be the
correct figure; and (b) increases in damage costs between now and 2010 will, in any case, bring
the damages up to the estimated costs. The further shift to CNG i s not justified on PM reduction
grounds.

4.67 While useful, this analysis has important limitations that should not be ignored. First, it
leaves out those options that can only be assessed qualitatively. Second, there are considerable
simplifications involved. The costs are dynamic and vary over time-as do the benefits. What i s
shown i s a rough picture o f somewhere in the fkture. Nevertheless, this analysis i s usefkl
because it eliminates some o f the more seriously wrong options, and because i t shows the scope
o f reductions that each alternative can make.

Recommendationsfor Actions on Urban Air Pollution

4.68 The analysis reported here i s often unclear about the potential benefits o f different
measures and indicates that most options need some further work in terms o f detailed design.
However, there are a number o f directions for policy. First, as far as lead i s concerned, action

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should be taken to examine the outstanding sources o f such pollution, including lead in paint
and lead in water and food. Based on that examination, a plan should be prepared for the phase-
out o f all such emissions where justified. Second, as far as other air pollutants are concerned,
the focus should be on PM, and particularly on PM2.5, which i s most associated with health
effects. Peru urgently needs to establish ambient standards for P M in priority urban areas and,
based on those, establish technology-specific standards for PM and i t s precursors. Ground-level
ozone i s monitored in a significant number o f urban areas in the world because i t i s the primary
constituent of smog and, in high concentrations, it has been linked with different health impacts,
including premature death (Bernales, 2006). For these reasons, Peru needs to implement a PM
and ozone monitoring program in priority urban areas. In addition, present knowledge justifies
the following actions:

a) The government should devote enough resources to ensure that the new I&M
program i s really effective. The past record is not good. T h i s i s an area where cost-
effective reductions in emissions can be made.

b) The retrofitting o f buses to control particles i s a low-cost option. A program to


implement retrofitting should be designed for introduction in the near future.

c) The low-sulfur diesel program, to w h c h the government i s committed, should be


kept on track for introduction in 2010. While such a program i s only marginally
justifiable in current circumstances, i t will be justifiable by 2010.

4.69 Other options regarding urban air pollution that need further evaluation are

a) The use o f CNG for buses and taxis.

b) Changes in the bus fleet to larger cleaner buses.

c) A phase-out o f two-stroke engines in “baby taxis” or replacement by four-


stroke engines.

d) The introduction o f abatement technology may be justified for a range o f


industries and plants, which may include smelters and fishmeal plants.

Table 4.5. Amounts of P M Reduction Feasible and Cost Per Ton for Selected Options

Option Reduction Feasible Cost US$/Ton


(in Tons)
Retrofit particle-control technology 360 3888
Inspectionand maintenance programs 2900 4096
Reductions in industry sources 1750 5114
Adoption o f low-sulfur diesel 3400 18000
Shift from low-sulfur diesel to CNG 500 80000
Notes:
1. Costs o f retrofitting are based on annual costs per car o f US$350 and emissions reductions o f 0.09
tons.
2. The I&M program cost estimates are taken from the Clean Air Committee study. They give a
central estimate o f US$4,096/ton.
3. Reductions in industry sources are taken from Table 4.4, as a simple average o f the costs.
4. The ‘adoption o f low-sulfur diesel’ estimates are from MINEM data on costs and ECON estimates
o f reductions in emissions.
5. The shift to low-sulfur diesel estimates are based on average costs o f conversion o f US$6,200 per
vehicle and a reduction in PM per bus o f 0.0768 tons per year.

81
EnvironmentalDamages Related to Water and Sanitation

Water and Sanitation Infrastructure Programs

4.70 The WHO (2002) estimates that the vast majority (88%) o f diarrheal disease in the
world i s attributable to ingestion o f unsafe water; lack o f access to water; lack o f access to
sanitation; contact with unsafe water; and inadequate management o f water resources and
systems, including in agriculture. Based on studies from several countries, estimates o f the
benefits associated with different measures to reduce damages arising from unsafe water and
sanitation have been developed. These international studies estimate the percentage reductions
in the incidence o f diarrheal morbidity and mortality following interventions to improve the
infrastructure that provides drinking water or basic sanitation, or interventions that improve
personal hygiene. The results are applied to Peruvian health data and to Peruvian estimates o f
the costs o f providing improvements in the areas described above. Each intervention i s
considered independently o f other possible interventions, with the aim o f providing benefit-cost
ratios for each intervention that the Government o f Peru might consider implementing.

4.71 The aim o f the infrastructure interventions i s to improve water supply and sanitation,
largely in rural areas. Two programs are investigated: one that provides 3.6 million people with
improved sanitation, and one that provides 3 million people with an improved water supply.66
Local data indicate that annualized per capita costs amount to 28 soles for improved sanitation
(improved latrines) and 25 soles for improved water supply (protected well or bore hole).67

4.72 The benefits are derived from a range o f studies and are calculated separately for
different categories o f individuals in rural Peru6' (Table 4.6). The key assumptions in deriving
the benefits relate to the costs o f morbidity and mortality and to the value o f time saved. The
morbidity costs, based on the costs o f treatment and value o f lost time, are 50 soles per case o f
diarrhea. The mortality costs are calculated based on the 'Human Capital Approach' (HCA) as
presented in the previous section. However, there are strong reasons to believe that the H C A
approach underestimates the value o f a lost life; hence, the figures reported here should be taken
as lower bounds. Finally, the programs generate savings in time, which i s an important
ingredient in the calculations. It i s based on data for households more than a 15-minute walk
from a water source (approximately 210,000 households are in this category). Time saved i s
valued at 75 percent o f the average rural wage (20 soledday, or 2 soleshour).

4.73 The data reveal that programs to improve water supply have a benefit-to-cost ratio
marginally greater than 1.0 when the time savings o f improved water are excluded. However,
the ratio increases to over 2.0 when time savings are taken into account. A similar conclusion
holds for the sanitation program (Table 4.6).

66 This i s the population in rural areas that lack improved sanitation and water supply according to the Peru DHS
2000.
67 Per capita investment costs represent average costs in south America (WHO - UNICEF, 2000). O&M i s operations
and maintenance based on local data.
Preliminary data suggest that the majority o f benefits are to be derived from improved rural provision.

82
Table 4.6. Benefits of Reductions in Diarrheal Morbidity and Mortality in Rural Peru

* 5 1 percent o f the rural population. ** 42 percent o f the rural population-households using surface
water (40%), tanker truck (1%) and “other” water sources (1%). This i s likely to be conservative, as some
water wells and pit latrines may not be considered improved water supply and sanitation.
Source: Larsen and Strukova (2006b)

4.74 Care should be taken in interpreting these results because the benefits are averages for
all o f rural Peru. There will be circumstances where the benefits w i l l be substantially greater
(and conversely where they will be much less) than these averages. Assessments that are more
detailed need to be carried out to determine where the programs are most needed and effective.
Second, the estimated benefits are probably low. The low value attached to the loss o f a child’s
l i f e has already been mentioned. From the perspective o f social choices, it i s important to note
that the benefits o f such programs would be preponderantly for the poor. Improving the living
standards o f the poor i s itself a goal o f social policy. These two factors would suggest that a
large number o f programs for improving the water supply and sanitation facilities in rural Peru
would be amply justified.

Hygiene Programs

4.75 The single most effective hygiene intervention i s handwashing after defecation, before
preparing meals, and before eating. Peru initiated a handwashing program in 2005 (Box 4.1),
which looks promising although the impacts o f this are not yet available.

I Box 4.1. The Handwashing Program in Peru

The Handwashing Public Private Partnership was established in Peru in 2003 to promote and
I
institutionalize handwashing among low-income families to significantly reduce the incidence o f
childhood diarrhea. With financing from the Japan Social Development Fund, USAID, the private sector
and local and regional governments, the program started with the training o f field personnel and
measurement o f a baseline against which the program’s impacts would be judged. In the first phase, 3,500
health professionals w i l l be trained and they, in turn, w i l l reach a target audience o f 117,000 mothers and
57,000 children in the first phase (2005-2006). So far, this component i s being implemented in five
regions o f the country. Funding i s being sought to extend the program to another six regions.

The program has a media campaign that includes a ‘soap opera’ in which the benefits o f the use o f soap
feature prominently, radio and newspaper advertisements, and poster contests. In addition, a door-to-door
sales force representing a private company i s promoting handwashing.

This initiative is to be welcomed and holds much promise for reducing diarrheal disease in rural areas.
However, it needs to be extended to more areas, and to include in situ disinfection.

83
4.76 Estimates o f possible benefits are reported based on studies in other settings. Curtis and
Cairncross (2003) provide a meta-analysis o f about 20 handwashmg studies and report a mean
reduction in diarrheal illness o f about 47 percent. Fewtrell and Colford’s (2004) meta-analysis
reports a mean reduction in diarrheal illness o f about 45 percent from handwashing
interventions. Based on these studies, the following estimates assume a reduction o f 45 percent
in diarrheal illness in all age groups. The analysis o f handwashing programs i s based on a
number o f data requirements and assumptions about effectiveness:

a. Percentage o f the targeted uopulation that change behavior as result o f the urogram.
In previous studies in Guatemala, Thailand and Burluno Faso, this has been found
to range from 10 to 18 percent.

b. Cost per targeted household. There i s a wide range for h s variable based on
previous studies-ffom US$0.40 to as much as US$5. Clearly, the benefit-cost ratio
w i l l depend on which cost figures apply.

4.77 Private costs w i l l be incurred because o f the program. More water will be used, along
with soap and other hygiene products. Estimates o f these costs have been made from Peruvian
data and surveys and are estimated at 38 soles per mother or caretaker.

4.78 A summary o f the benefits and costs o f a rural and an urban handwashing program has
been calculated (Tables 4.7 and 4.8). The assessment i s made for a program targeted only at
children under five that additionally benefits those over five at no incremental cost. For children
under five, three levels o f effectiveness are evaluated: 10 percent, 15 percent and 20 percent.
These are combined with three program costs: the lowest effectiveness rate assumes a unit cost
o f 1.5 soles, the middle effectiveness program a unit cost o f 4 soles and the highest
effectiveness program a cost o f 18 soles per targeted household. The benefits are based on the
reductions in diarrheal morbidity and mortality.

Table 4.7. Benefits and Costs of a Rural Handwashing Program

I Rural Households with Children I

* There are about 1 million rural children under the age o f five years in Peru. It i s assumed there is one
child under five in each household (thus the program target i s 1 million households). However, the
estimated benefit-cost ratio is higher for households with more than one child under five. ** Private Costs
per Household are estimated t o be equal in the three scenarios, but total private costs would increase as
the response rate increases. The private total costs under the “high” scenario would be twice those under

84
the “low” scenario, since the “high” scenario assumes a percentage o f households with behavioral change
that i s twice that o f the “low” scenario. Private costs per household on water and hygiene products are
estimated to be the same across all scenarios because it i s assumed that households’ spending on these
items i s independent o f response rates. ***The Benefit-Cost Ratios only consider the costs and benefits o f
households with behavioral change. ****
Benefits and costs in the second and third years are discounted
at an annual rate o f 10 percent.

4.79 The data show benefit-cost ratios significantly greater than 1.0 in all cases. They also
show how the benefit-cost ratios vary in the period during which the program brings about
behavior changes. Naturally, the longer people maintain the better habits, the higher are the
benefits.69 Finally, urban programs are uniformly lower than rural ones, because diarrheal
incidence per person and mortality rates are generally lower in urban areas.”

4.80 Lastly, the benefits o f the same program to households without young children are
evaluated (Table 4.9). The costs o f the program are allocated to the main program, so these
benefits are ‘additional’ to the ones given in Tables 4.7 and 4.8. However, even allowing for
that, the benefits are less than the private costs, because diarrheal incidence i s so much lower in
these ho~seholds.~~

Table 4.8. Benefits and Costs of an Urban Handwashing Program

* There are about 1.9 million urban children under the age o f five in Peru. ** The benefit-cost ratios
consider only the costs and benefits o f households with behavioral change. *** Benefits and costs in the
second and third years are discounted at an annual rate o f 10 percent.
Source: Larsen and Strukova (2006b)

69
One might expect some attrition over time, but behavior changes should continue for more than one year. Programs
that last longer may also have a higher cost that i s not analyzed here.
70
Disease and hygiene conditions in poor pen-urban areas bear similarities to rural areas as indicated in Prisma’s
(2004) handwashing study. Therefore, the benefits o f a handwashing program in these areas are likely to be higher
than in other urban areas.
7 1 The fact that the benefit-cost ratio i s less than one here i s not particularly important because i t i s a comparison o f
private benefits and costs. If the private benefits are less than the costs, then individuals will not adopt the program
(or will not adopt i t for long).

85
Table 4.9. Benefits and Costs of a Handwashing Program:
Householdswithout Children

* Private costs per household for water and hygiene products are estimated to be independent of response
rates in both urban and rural programs. **The benefit-cost ratio i s independent of duration o f sustained
handwashing improvement because the upfront handwashing program cost i s allocated to the primary
target of the program, i.e., to households with young children.
Source: Larsen and Strukova (2006b)

Drinking Water Disinfection

4.81 The U S A l D Handwashing Survey (2004) reports that about 70 percent o f households
disinfect their drinking water (point-of-use disinfection). According to the survey, the most
common method o f disinfection i s boiling water. Therefore, this i s the method considered in the
benefit-cost analysis here (Table 4.10). Fewtrell and Colford (2004) report from their meta-
analysis that disinfection o f dnnking water at point-of-use reduces diarrheal illness by 47
percent in rural areas and 23 percent in urban areas.

4.82 There are no estimates o f program costs to promote drinking water disinfection at point-
of-use. The same program costs and behavioral change rates as for hand-washing programs are
therefore applied. The private cost o f boiling drinlung water i s estimated at 75 soles per year for
households using commercial fuels and 35 soles for households using fuelwood. In rural areas,
the program i s estimated to avert 160-320 thousand cases o f diarrhea and 20-40 deaths in
children per year (Table 4.10). The benefit-cost ratio for the central estimate i s 5.4,
corresponding to a 15 percent program response rate with dnnking water disinfection sustained
for two years. Even for the “high” program cost, and with improved hand washing only
sustained for one year, the benefit-cost ratio i s 2.4.

86
Table 4.10. Benefits and Costs of a Rural Drinking Water Disinfection Program

*Private Costs per household are estimated to be equal in the three scenarios, but total private costs would
increase as the response rate increases. The private total costs under the “high” scenario would be twice
those under the “low” scenario, since the “high” scenario assumes a percentage o f households with
behavioral change that is twice that o f the “low” scenario. Private costs per household for water and
hygiene products are estimated to be the same across all scenarios because it i s assumed that households’
spending on these items i s independent o f response rates. ** The benefit-cost ratios consider only the
costs and benefits o f households with behavioral change. *** Estimate based on efficiency o f L P G and
wood stoves, cost o f LPG, fuelwood collection time o f 30 minutes per day and 10% o f fuelwood i s used
for boiling water, and per person water consumption o f 0.75 liter per day. ** Benefits and costs in the
second and third years are discounted at an annual rate o f 10 percent.

11Low9t ItMediumIl “Hi h”


Target households - urban population not practicing disinfection
(millions) 1.24 1.24 1.24
. person
Percent reduction in diarrheal illness per - (Fewtrell and
Colford, 2004) 23% 23% 23%
Cases o f diarrheal illness averted per year (thousands) 120 180 240
Deaths in children averted per year 4 0 4 5 <20
Benefit-Cost Ratios
LOW: If behavioral change lasts 1 year 1.o 0.8 0.5
MEDIUM: If behavioralchange lasts 2 years* 1.1 1.0 0.7
HIGH: If behavioral change lasts 3 years* 1.2 1.1 0.8

4.83 The benefit-cost ratio for urban areas i s only above 1.0 for the “low” program cost, or
for “medium” program cost if disinfection i s sustained for at least two years (Table 4.1 1). The
benefits are so much lower in urban areas because o f the substantially lower percent reduction
in diarrhea expected from disinfection and because o f the lower diarrheal incidence per person
in such areas.

87
Summary Assessment of Interventions Related to Water and Sanitation

4.84 The different interventions discussed above can be summarized in terms o f their
contribution to reduced environmental damages and the ratio o f benefits to costs (Figure 4.4).
This i s unlike the earlier conventional cost-effectiveness rankings for urban air pollution, but it
serves a similar purpose. Figure 4.4 shows the amount o f reduction o f environmental damage on
the horizontal axis (in millions o f soles) and the benefit-to-cost ratio on the vertical axis. The
graph then plots the relative values o f these two pieces o f information for a number o f
interventions. Rural drinking water disinfection (i.e., household boiling o f drinking water) has
the highest ratio o f benefits to costs, but makes a relatively small reduction in environmental
damages. I t i s followed by rural handwashing by mothers or caretakers o f young children; this
yields a slightly higher reduction in damages. Next i s urban handwashing, and then provision o f
improved water supply and safe sanitation facilities in rural areas. Both o f the latter reduce
damages the most. Disinfection o f urban drinking water at point-of-use i s also estimated to
provide higher benefits than costs, but i t contributes only a small reduction in damages. Finally,
the benefits o f handwashing among adults, unless caring for young children, are estimated to be
significantly lower than the In total, the measures with a positive benefit-to-cost ratio
could reduce the cost o f health effects by 350 million soles per year.73

Figure 4.4. Water Supply, Sanitation and Hygiene Interventions

B
5

0
0 50 I00 150 200 250 300 350
CED reduction (mllllon Soles per year)

ote: B/C = benefit-cost ratio. CED = cost o f environmental damage (i.e., cost o f health effects).

Recommendationsfor Actions on Water Supply and Sanitation

4.85 From the analysis presented here, it i s clear that most measures to improve the
water supply and sanitation facilities in rural areas yield benefits in excess o f costs

72 The benefit-cost ratios for handwashing and drinking water disinfection are based on behavioral change being
sustained for two years. The ratios would be higher (lower) if, as a result o f promotion programs, households sustain
improvedbehavior for longer (shorter) than two years.
73 This figure does not consider the possible interaction effects between different interventions (i.e., how the impacts
o f a first intervention affect those o f a second intervention), because data constraints preclude a sound analysis o f
such effects.

88
under most assumptions. The programs are also justified because the benefits are
concentrated primarily among the poor. These measures include drinking water
disinfection, handwashing, improved rural water supply and safe rural sanitation. The
highest priority should be given to the drinking water disinfection and handwashing
programs.

I n d o o r Air Pollution

4.86 I t i s well documented fiom studies around the world that air pollution f i o m solid fuels
used for cooking and heating the indoor environment has substantial respiratory health effects.
Women and young children appear to bear these effects the most, because they tend to spend
more time indoors andor closer to the cookmg areas.

4.87 Smith et al. (2004) and Desai et al. (2004) report results o f health effects from biomass
smoke (e.g., fuelwood) and coal smoke based on a meta-analysis o f available studies (Table
4.12). The relative risks (RRs) represent the risk o f health effect or illness relative to the use o f
clean fuels such as LPG. Therefore, RR for households using L P G i s 1.0. The strongest
evidence o f health effects i s for acute lower respiratory illness (ALRI) in children under five
years, COPD in adult females, and lung cancer in adult females from coal smoke.

Table 4.12. Relative Risks for Strong and Moderate Health Outcomes

Evidence Health Outcome Group RFt CI


Strong ALRI Children <5 yrs 2.3 1.9-2.7
COPD Women >30 y r s 3.2 2.3-4.8
Lung cancer (from coal smoke) Women > 30 y r s 1.9 1.1-3.5
Moderate4 COPD Men > 30 y r s 1.8 1.0-3.2
Lung cancer (from coal smoke) Men > 30 y r s 1.5 1&2.5
Moderate4 Lung cancer (from biomass smoke) Women > 30 yrs 1.5 1.c-2.1
Asthma Children 5-14 y r s 1.6 1.0-2.5
Asthma All > 15 y r s 1.2 1.0-1.5
Cataracts All > 15 y r s 1.3 1.0-1.7
Tuberculosis All > 15 y r s 1.5 1.0-2.4

4.88 Five scenarios were selected that represent five stylized situations commonly found in
most developing countries (Table 4.13). These stylized situations reasonably well represent the
pollution loads fiom solid fuel use. However, actual pollution exposure can vary substantially in
each scenario, and depend on additional factors such as household ventilation practices, housing
characteristics and household behavior. As national-level data on these factors i s not readily
available, a sensitivity analysis o f relative risk will need to be undertaken to assess the llkely
influence o f these factors on the benefit-cost ratios o f interventions.

BeneJit-Cost Analysis for Indoor Air Pollution Interventions (IAP)

4.89 A benefit-cost analysis i s undertaken for four household interventions and two
community kitchen interventions for rural areas o f Peru. The analysis i s based on the stylized
situations described in Table 4.13. The estimated benefits o f these interventions are presented in
Tables 4.14 and 4.15. Avoided cases o f ARI and COPD are estimated from the relative risk
ratios for ARI and COPD in women, as estimated across a number o f studies in Latin America
and elsewhere, combined with baseline estimates o f annual cases o f ARI and COPD. More

89
details are provided in Chapter 3 and in Larsen and Strukova (2006b). The monetary benefits o f
avoided cases are calculated from the estimated unit costs o f ARI and COPD morbidity and
mortality. Unit costs o f morbidity include medical treatment cost, value o f time losses (at 75
percent o f rural wages), and the value o f a ‘disability adjusted life year’ (DALY), valued at
GDP per capita as a proxy for the cost o f reduced ~ e l l - b e i n g . ~ ~

4.90 Regarding the valuation o f loss o f life, child mortality i s valued using the human capital
approach (HCA) o f discounted l i f e earnings losses as described earlier. However, for adult loss
o f life, both approaches to the valuation o f mortality have been included. As a lower bound,
HCA-based value has been used. An upper bound has been derived based on the willingness-to-
pay approach, which provides an estimated value o f statistical life (VSL). As reported earlier,
this value lies between 390,000 and 650,000 soles. The choice o f valuation technique for adult
mortality affects the total health benefits o f the interventions by only 20 percent.

Table 4.13. Fuels, Stove Technology, and Pollution Scenarios

Stylized Situation Stylized Description Relative Risk

I.Unimproved wood stoves L o w energy efficiency. N o chimney or ventilation Very High


or open fire device. Very high indoor pollution load.

11. Improved wood stoves Relatively low energy efficiency. Chimney (or High
other ventilation device) taking much o f the smoke
outdoors. Still, relatively high indoor pollution
load if stove/chimney i s not maintained well.

111. Unimproved wood stoves Pollution load reduced in proportion t o the use o f Medium
and L P G (or other clean fuel) LPG (relative to situation I.).

IV. Improved wood stoves Pollution load reduced in proportion to the use o f Medium to L o w
and LPG (or other clean fuel) LPG (relative to situation 11.).

V. LPG or other clean fuel Absence o f smoke from solid fuels. Low

4.91 An estimate o f the value o f time savings fiom reduced fuelwood collection i s included
for each intervention (Tables 4.14 and 4.15). As a base case, it i s assumed that a household
using an unimproved wood stove spends on average o f 30 minutes per day on fuelwood
collection. It i s assumed that household substitution from an unimproved to an improved stove
provides a 33 percent time savings, because o f the higher energy efficiency o f improved stoves.
A substitution from an improved stove to LPG would then provide a 67 percent time saving.
Time i s valued (as before) at 75 percent o f average rural wages. In total, the estimated benefits
o f time savings are 35-70 percent o f health benefits, or 25-40 percent o f total benefits. The
estimated time benefits o f community kitchens with LPG are larger than the health benefits
because o f time savings in coolung in addition to avoided fuelwood collection.

74
DALYs are an alternative measure o f loss o f well-being resulting from illness. As an approximation that has been
used in other studies, they have been valued at GDP per capita-see Larsen and Strukova (2006a).

90
Table 4.14. Benefits and Costs of Rural Indoor Air Pollution Control

LPG
from Mix
of
Improved
Stove and
LPG
0.35
0.05
20
15
C
J

12
8
2

Annual cost of LPG (million soles) 380 25 25


Benefit-CostRatio (health benefits only) 5.1 0.4 0.9 0.4
Benefit-Cost Ratio (health and time benefits) 6.8 0.7 1.3 0.7
*This i s from using VSL for COPD adult mortality. Using the HCA approach gives 20% wer health
benefits. ** Substitution from unimproved to improved stoves i s assumed to reduce health effects by 50
percent, and substitution from improved stoves to LPG i s assumed to avert the remaining 50 percent o f
health effects from IAP.

Table 4.15. Benefits and Costs of Rural Community Kitchens

* This i s from using VSL for COPD adult mortality. Using the HCA approach gives 20% lower health
benefits.

4.92 The estimated annual costs o f interventions have also been estimated (Tables 4.14 and
4.15). A tentative estimate o f the program cost o f promoting, implementing improved stoves
and LPG fuel switching, and sustaining a stove inspection and maintenance program i s included
in the table. Annualized stove costs (improved stove or LPG stove) are about the same as the
program cost. For the LPG fuel-switching interventions, the fuel (LPG) represents around 90
percent o f the interventions’ total costs.

4.93 Eight benefit-cost ratios are estimated for the household interventions. Four ratios
include only the health benefits, and four ratios include both health benefits and benefits o f time

91
saving from reduced fuelwood collection, i.e., total benefits. The estimated benefit-cost ratios o f
adopting improved stoves far exceed unity, even without the value o f time saving. The benefit-
cost ratio for switchng to LPG from unimproved stoves, or from a mix o f unimproved stoves
and LPG, i s higher than unity when time savings are included in the benefits, but less than unity
if only health benefits are included.75The ratios for switchmg from improved stoves to LPG, or
for switching from a mix o f LPG and improved stoves to LPG alone, are lower than unity
(Table 4.14).

4.94 Substitution from unimproved and improved stoves in individual households to


community htchens with LPG i s found to have substantially higher benefits than costs (Table
4.15). The benefit-cost ratio i s estimated at 3.6 for substitution from unimproved stoves to LPG,
and 2.5 for substitution from improved stoves to LPG when time benefits are included. The
reasons for the high benefit-cost ratios are substantial L P G efficiency gains from larger pots
used for cooking in community kitchens compared to pots used in individual households, and
substantial time savings o f one kitchen cooking for many households. However, for households
with improved stoves, the health benefits alone are not large enough to outweigh the cost o f
switching to community kitchens with LPG.

4.95 While promotion o f improved stoves i s a very attractive intervention, the merits o f
promoting L P G in individual rural households are uncertain. LPG prices would have to be
reduced by as much as 25-30 percent for the estimated benefits to exceed costs. Moreover, the
benefits include both health improvements and time saving from reduced fuelwood collection.
Time savings are valued at 75 percent o f rural wages. However, if rural households value their
time at only 50 percent o f rural wages, then LPG prices would need to be reduced by 40 percent
for benefits to exceed costs. Therefore, it seems that LPG will have a chance o f success only in
better-off households and community kitchens.

Summary Assessment of IAP Interventions

4.96 The different interventions discussed above can be summarized in terms o f their
contribution to reduced environmental damages and the ratio o f benefits to costs, as was done
for the water and sanitation programs (Figure 4.5). The benefit-cost ratios reflect both health
benefits and the value o f time savings. Household substitution from unimproved to improved
stoves has the highest ratio o f benefits to costs and the largest reduction in damages. T h i s i s
followed by switching to community htchens with LPG from use o f unimproved or improved
stoves in individual households, and household switchmg to LPG alone from a m i x o f
unimproved stove and LPG.76 Each o f these measures contributes an increasingly smaller
amount o f reduction in environmental damages; in total, they reduce the cost o f health effects by
250 million soles per year. T h i s reflects a substitution to improved stoves in 33 percent o f rural
households, use o f LPG in community kitchens for 15 percent o f rural households, and
switching to LPG alone from a mix o f unimproved stoves, and LPG in 5 percent o f rural
households.

Recommendationsfor Actions on Air Pollution

4.97 The analysis presented here supports the unqualified recommendation to shift
households who have unimproved stoves to improved ones. The results o f other improvements,
such as from unimproved stoves to L P G or f i o m improved stoves to LPG, depend on the cost
figures and benefit figures used. Hence, a more detailed analysis needs to be carried out for such
changes, looking at specific cases and tahng into account other benefits.

75 The benefit-cost ratios for switching to LPG from unimproved stove are not presented in Table 4.14.
76 A substitution fiom unimproved stoves to LPG i s not included in the graph. This would represent a double
counting o f reductions in health effects from indoor air pollution because substitution from unimproved stoves i s
already reflected in the substitution to improved stoves.

92
Figure 4.5. Indoor Air Pollution Interventions

BIC

8.0

7.0

6.0

5.0
fuel from unimproved

4.0

3.0

2.0

I.o

0.0
0 50 100 150 200 250 300 350 400
CED reduction (million Soles per year)

Iote: B/C = benefit-cost ratio. CED = cost o f environmental damage (Le., cost o f health effects).

Overall Short-Term Recommendations

4.98 Overall recommendations for actions relating to environmental heath are summarized
below in Table 4.16. To address air pollution, urgent attention i s needed to establish national
ambient standards for PM and to implement a program to monitor air quality. These are both
low-cost actions. Steps to determine the sources o f lead pollution and to prepare an action plan
for dealing with them are also urgent and low cost. Other actions that have been identified have
modest-to-high costs and include strengthened I&M programs, retrofitting o f diesel-operated
buses and reduced sulfur content o f diesel. Regarding water supply and sanitation, the priority
short-term actions o f handwashing for children and disinfection o f water are low cost. Finally,
to address indoor air pollution, priority actions with modest costs are the promotion o f LPG and
other cleaner fuels to those predominantly dependent on fuelwood, and the implementation o f a
program to promote improved stoves for those who do not have them.

93
Table 4.16. Recommended Short-Term Actions for EnvironmentalHealth

Objective Recommended Short-Term Actions

Establish national binding Maximum Permissible Levels (LMPs) for


Reduce health risks
PM2.5 and PMlO in priority urban areas and strengthen technology-
associated with ambient air
specific emission standards for PM and i t s precursors (particularly
pollution
sulfur and nitrogen oxides) (Cost: low)
Implement an air quality monitoring program to monitor PM2.5,
PMlO, and ozone in priority urban areas (Cost: modest)
Prepare an action plan to reduce lead pollution from sources other
than gasoline, particularly in localities where lead concentrations
exceed the national Air Quality Standard. (Cost: modest)
Implement interventionsfor air pollution control, including (a)
promoting retrofitting of diesel-powered vehicles; (b) implementinga
program of testing vehicle exhausts; (c) reducing sulfur content in
diesel to less than 500 parts per million, along with increasing clean
imports of diesel with low-sulfur content. (Cost: modest to high)

Promote handwashing programs that target children under the age of


Reduce health risks
five. (Cost: low)
associated with inadequate
water supply, sanitation Promote safewater programs that include disinfection of drinking
and hygiene water at point-of-use. (Cost: low)

Promote the use of LPG and other cleaner fuels in areas that
Reduce cost o f
predominantlyuse fuelwood, and implement actions to improve
environmental degradation
availability and affordability for fuelwood users in a safe and cost-
associated with indoor air
effective manner (Cost: modest)
pollution
Implement a programto promote improved stoves with a chimney or
other ventilation device. (Cost: modest)

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CHAPTER 5

REDUCING VULNERABILITY TO NATURAL DISASTERS

Peru is one of the Latin American countries most highly prone to natural disasters-
earthquakes, jloods, landslides, drought, the periodic impacts of E l Niiio, and other events. The
impacts in terms of human lives, homes destroyed and damaged, and destruction of the social and
economic infrastructure have been severe. Aside from natural causes, the effects of these
disasters have been exacerbated by influences from human activities, including deforestation, soil
erosion, and poor land use practices. Historically, the country’s civil defense institutions, notably
the National Institute for Civil Defense (INDECI), have emphasized disaster mitigation and
relief; rather than disaster prevention and the analysis of disaster risk. Only in the past j h e years
have these institutions begun to evolve toward a set of integrated policies and practices that
emphasize disaster prevention, risk assessment, and the reduction of vulnerability. Signijkant
tasks remain before these policies and practices are fully integrated into the plans and budgets of
national, regional, and local institutions. 77

Introduction

5.1 Over i t s long history, Peru has suffered profoundly from natural disasters. Located o n a continent
that i s one o f the most disaster-prone regions on earth (IADB, 2000), Peru i s characterized by i t s
proximity to major earthquake faults, a highly mountainous topography, and increasingly urbanized
development that has concentrated a growing proportion o f the population. A review o f disaster exposure
indicators in Latin America shows that Peru’s incidence o f natural disasters i s nearly twice that for Latin
America as a whole, while i t s rate o f fatalities i s the highest on the entire continent (CharvCriat, 2000).
These disasters have many causes: earthquakes, tsunamis, floods, landslides, volcanic eruptions, and
others. Periodic occurrences o f the E l Niiio phenomenon, most recently in 1997-1998, have caused major
flooding, landslides, and associated devastation, especially in the co~ntry’snorthern parts. Together, these
conditions have made the Peruvian population highly vulnerable to natural disasters. Although some o f
these disasters have distinct natural sources, the effects o f others-notably, flooding and landslides-are
greatly exacerbated by human activities that modify environmental conditions and create a greater
predisposition to more severe effects, particularly in response to heavy rains, including those associated
with E l Niiio. T h i s suggests that strategic interventions to assess sources o f risk, ameliorate the effects o f
natural disasters, and target public investments to reduce human vulnerability hold the potential for
significant payoffs for the Peruvian population.

Current Situation

5.2 Statistics show that the incidence o f natural disasters increased in Peru over the 2000-2004
period, according the National Civil Defense Institute (Instituto Nacional de Defensa Civil, INDECI). The
frequency o f specific types o f disasters varies annually. However, in most years as well as the five-year
period as a whole, the three most prevalent types o f natural disasters were strong winds, floods, and heavy
rains. Together, these accounted for nearly two-thirds o f the total number o f natural disasters during this
period. However, it should be emphasized that the incidence o f natural disasters i s not necessarily

77
This chapter was prepared by David Lee, based in part on a backgrounddocument prepared by Lenkiza Angulo (2005) for this
study.

95
correlated with their impact (see discussion below). Other common disasters include landslides, huaycos
(a local t e r m for gully-type landslides), and frost. During the 2000-2004 period, the incidence o f natural
disasters increased more than threefold.

Source: Regional Offices, National Operations Office, INDECI, 2005

5.3 T h e increase in natural disasters seen during 2000-2004 (Table 5.1) i s also evident over the
lengthier period o f 1990-2004 (Table 5.2) (Angulo, 2005). By these measures, flooding increased from
521 events in 1970-1980 to 840 events in 1990-2000, which i s more than 60%. Huuycos increased from
172 events in 1970-1980 to 682 events in 1990-2000, which i s nearly fourfold. In fact, this increased
frequency o f natural disasters in 1970-2000 represents a continuation o f a longer-term trend over the
second half o f the 20th century in Peru, and i s independent o f the fact that the registry o f natural disaster
events i s increasing in coverage and quality ( h g u l o , 2005). Moreover, this trend i s characteristic o f Latin
America as a whole, as it i s globally (CharvCriat, 2000). As discussed below, there are several reasons for
this, including increasing deforestation in the Andean highlands and increasing degradation o f many o f
Peru's river basins.

5.4 Care must be taken in interpreting trends over the longer term, since INDECI data currently
include several categories o f natural disasters that were excluded from official statistics in the 1990s and
before: volcanic activity, avalanches, thunderstorms, strong winds, and drought. However, even when
these changes in the official statistics are taken into account, the measured incidence o f natural disasters
has increased significantly in recent years. The situation in Peru i s similar to that o f other nations. In the
decade preceding 2004, the Secretariat o f the International Strategy for Disaster Reduction (ISDR)
estimates that natural disasters affected 2.5 billion people and caused $690 billion (US) in economic
losses, the vast majority stemming from hydro-meteorological hazards (UNEP, 2005).

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Table 5.2. Incidence of Earthquakes,Floods and Huuycos,
by Department and Decade, 1970-2000

Source: DESINVENTARNatural Disaster Data Base, ITDG Network. www.desinventar.org

5.5 Although this chapter focuses principally on human-induced natural disasters, it i s important to
emphasize that many o f Peru's most catastrophic disasters have been due to natural phenomena like
earthquakes and El N i i o . Peru i s in one o f the most seismically active areas o f the planet, and the cities
and populations o f the coast and neighboring Andean areas are particularly vulnerable. Earthquakes often
occur in the southern Coastal region, particularly in the area near the Peru-Chile border and in the
Arequipa area between Atico and Camani. Recent earthquakes that have been particularly devastating
were those in Huaraz in 1970, which caused 70,000 deaths, more than 150,000 injuries, and total damages
exceeding US$500 million; the 1966 and 1974 Lima earthquakes; and the earthquake and tsunami in
southern Peru in June 200 1. Estimates from the President's Cabinet (PCM) are that 62 provinces in Peru,
located all over the country, have a high or very high seismic danger, and that 71.3% o f the national
population lives in those provinces (Angulo, 2005).

97
5.6 N o t only i s Peru highly prone t o natural disasters-earthquakes, floods, landslides, drought, El
Niiio, and other events-but the impacts in terms o f human lives, homes destroyed and damaged, and
destruction o f the social and economic infrastructure have also been severe. Aside from natural causes,
the effects o f these disasters have been exacerbated by influences f r o m human activities, including
deforestation, soil erosion, and poor land use practices. Historically, the country's c i v i l defense
institutions, notably the National Institute for Civil Defense (INDECI) have emphasized disaster
mitigation and relief-ften following periodic disasters like earthquakes or flooding caused by El
Niiio-rather than disaster prevention and the analysis o f disaster risk. Only in the past five years have
these institutions begun t o evolve toward a set o f integrated policies and practices that emphasize disaster
prevention, risk assessment, and the reduction o f vulnerability. Significant strides have to be made before
these policies and practices are fully integrated in the plans and budgets o f national, regional, and local
institutions.

5.7 Even beyond the periodic El Niiio events, the damage t o the human population, houses, public
infrastructure, and productive agricultural land stemming f r o m natural disasters has been considerable.
Official estimates o f these impacts over just the recent 2000-2004 period include 635 deaths, 9,840
injuries, 40,941 houses destroyed, and 187,385 cultivated hectares lost to disasters (Table 5.3). The
greatest effects o f natural disasters in terms o f deaths, disappeared persons, houses destroyed, and houses
damaged were reported in 2001, the year o f the major earthquake and tsunami in southern Peru. In 2002
and 2004, adverse climatic phenomena produced significant damage to agricultural production.

Total Cultivated
Disappeared Houses Houses
Year Number of Deaths Injuries Hectares
Persons Victims* Affected Destroyed Lost
Disasters

* Includes deaths, persons directly injured and persons affected.


Source: Regional Civil Defense Offices, National Operations Center, INDECI, 2005

5.8 Collectively, between 1985/1990 and 2005, it i s estimated that natural disasters caused an annual
average cost o f 1.075 billion soles in Peru, or about US$325 million (Chapter 3 and Table 5.4). This
amount was derived from estimating the annual values o f agricultural, housing, and infrastructure losses,
the costs o f injuries to humans (including medical treatment costs and the values o f lost w o r k time and
time caring for ill family members), and the average values o f human mortality calculated using two
different approaches. The first, a lower value, stems f r o m the Human Capital Approach (HCA), which
estimates the present value o f future income lost to premature death. The second uses the value of
statistical life (VSL) methodology, which estimates willingness t o pay for a reduction in the r i s k o f death
(Chapter 3, and Larsen and Strukova, 2006a). By far the t w o largest categories o f annual economic costs
due t o natural disasters, accounting for 80 percent o f the total cost, are those associated with damage t o
and destruction o f housing. The effects o n a p c u l t u r e and human life are the next most important. These
estimates likely underestimate the full effects o f natural disasters due t o several factors: the conservative
estimates stemming from the HCA methodology; the lack o f incorporation o f broader dynamic multiplier
effects o n regional and national economic development stemming f r o m natural disasters; and the fact that
using 1985/90-2003 averages neglects the increasing trend o f natural disasters and their resultant effects

98
over t h i s period. Nonetheless, these estimates clearly demonstrate the order o f magnitude o f total losses as
well as the relative contributions. T o put the Peruvian losses in context, total natural disaster impacts in
Latin America and the Caribbean during 1990-1998 have been estimated at $24.2 billion (US)
(OFDNCRED, 1999).

'Valuation o f mortality i s an average o f HCA and V S L (Larsen and Strukova, 2006a).

* Includes deaths, persons directly injured and persons affected.


Source: Regional Offices and National Operations Office, INDECI

These effects on Peru's population were caused by numerous different types o f natural disasters during
2000-2004 (Table 5.5). The events with the greatest effects on victims were floods, earthquakes, frost and
snow, and drought. The damage produced by flooding was distributed throughout the period, but was
especially heavy in 2003. The damage caused by earthquakes took place largely during the 2001
earthquake in southern Peru. Damage caused by snow and frost took place mainly in 2002 and 2004, with

99
extreme temperature drops and snow that affected poor communities in southern Peru at high altitudes
above 3,500 masl.

5.9 The effects o f natural disasters in Peru vary widely by geographic location (Table 5.6), makmg it
difficult to generalize about causes and effects for the nation as a whole. A s one would expect, the
frequency o f specific types o f disasters differs markedly by location in the country. Heavy winds are
particularly severe in the Onente (Loreto, San Martin and Amazonas), two Departments in the Sierra
(Puno and Cajamarca) and o n the northern Coast (Piura). Heavy rains are severe both in the Sierra
(Apurimac, Cajamarca, Huancavelica and Puno) and in lower elevations both in the Oriente (Amazonas)
and o n the Coast (Arequipa). The flooding caused by those heavy rains has been particularly severe in
highland areas (Cuzco and Puno) and in the lowland regions fed by those rains: Madre de Dios, Loreto
and San Martin. Predictably, landslides are especially problematic in the Sierra and Onente regions,
which are also characterized by heavy rains and/or flooding: Cuzco, Amazonas, Cajamarca, Huancavelica
and Apurimac. Other natural disasters are more geographically specific. Overall, INDECI's national
disaster plan estimates that nearly h a l f (46.2%) o f the natural disasters occurring between 1993 and 2002
were caused by floods (INDECI, 2004). Importantly, a PCM study has identified 89 provinces with high
or very high vulnerability to multiple natural disasters; more than 17.65 m i l l i o n people, representing more
than 76% o f Peru's population, l i v e in those provinces (Angulo, 2005). These include areas in several
Departments-Ancash, Junin, Huancayo, Cuzco, Cajamarca, Lima, and Arequipa-that exhibit high
vulnerability to landslides, huaycos, floods, and avalanches due to earthquakes and/or heavy rains
associated with El Nifio.

Causes o f Natural Disasters

5.10 While the underlying causes o f many natural disasters stem f r o m natural forces, the effects o n
human populations are frequently exacerbated by human actions. Natural causes include the periodic
recurrence o f El Nifio, earthquakes and heavy winds. However, the incidence and severity o f the impacts
o f some natural disasters-including flooding, landslides and huaycos-are all exacerbated by human
interventions affecting the environment. T w o causes in particular stand out: soil erosion and
deforestation. As discussed in Chapter 7, soil erosion i s a widespread problem in Peru, affecting at least
128 million hectares nationally, particularly in the Sierra and Oriente. Erosion exacerbates the effects o f
heavy rainfall by reducing the absorptive capacity o f the soil, thereby worsening flooding and
sedimentation problems downstream during periods o f heavy rain. Soil erosion, in turn, stems from a
variety o f factors, many o f which are influenced by human actions: deforestation and removal o f ground
cover; poor cropping and irrigation management practices; the frequent lack o f use o f basic soil
conservation practices; widespread overgrazing o f cattle, particularly in the Sierra; and poor watershed
management practices in general.

In addition to i t s indirect effects vis-a-vis soil erosion, deforestation also directly contributes to the
severity o f runoff by altering the hydrological regime, decreasing the capacity for humidity retention in
dry years and decreasing the land's vegetative cover, particularly in higher altitude areas o f watersheds,
makmg them more vulnerable t o intensive rainfall and erosive processes. As noted in Chapter 7,
deforestation in Peru has recently been estimated at about 150,000 hectares annually. However, this i s
primarily a problem in Peru's Oriente region, where it i s o f course not linked t o the flooding and
landslides in the Sierra and Coast. Deforestation and associated loss of ground cover fostering soil erosion
have occurred over many years. It should also be noted that a recent international report from the U N ' s
Food and Agricultural Organization and the Center for International Forestry Research, while
acknowledging the link between deforestation and flooding at small geographic scales, has questioned the
link at larger scales (FAO-CIFOR, 2005).

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Table 5.6. Location o f Natural Disasters in Peru b y Department, 2000-2004

Department

5.11 Whether caused by soil erosion, deforestation, or other factors, increased runoff and
accompanying sedimentation often have severe downstream effects, increasing river volume and flood
risk in exposed and low-lying areas. Deforestation and erosion also allow rainwater infiltration and
supersaturation o f the soil, which in turn, create conditions for mass soil movement resulting in landslides
and huaycos. On the Coast, intense rains associated with El Niio on barren or deforested soils cause
periodic heavy runoff, gully erosion and huaycos. If rivers are not properly channeled and river banks not
reinforced in critical areas, or if vegetation and building construction have interfered w i t h or occupy
natural channels, the effects downstream can be critical, causing damage to agriculture, water and power
sources, transportation, and human health. For example, the devastating effects o f El Niio in 1997-1998
in the area surrounding Piura resulted from this type o f interlinked series o f events. As shown above
(Table 5.4), the economic impacts on the housing stock are particularly devastating.

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5.12 Another key factor contributing both directly and indirectly to the impacts o f natural disasters in
Peru i s climate change. Some o f these processes are well understood; others are not. One o f the direct
links i s through increased glacial melt. Peru contains roughly 71% o f the globe's tropical glaciers. Since
the early 1980s (PCC, 2004) Peruvian glaciers have lost about 22% o f their glacial surface (500 krn'),
equivalent to 7,000 million m3o f water (about ten years o f water supplies for Lima). Peru also has over
12,000 lakes and ponds that could be destabilized by glacier melt. Furthermore, the combined impacts o f
global warming, ENSO (El Nifio Southern Oscillation) and extreme weather events on mountain
hydrology are diminishing the water flow used by populations downstream (IRD, 2004). T h i s i s likely to
have devastating impacts on highland and associated downstream ecosystems, altering the ecology and
livelihoods o f millions o f people, whose greenhouse gas emissions are negligible. In addition, Peru's
energy sector could be affected, since 80% o f i t s energy generation comes from hydropower.

5.13 While the above effects are relatively direct, the underlying connections between greenhouse gas
(GHG) emissions, global warming, and ENSO are less clear. There i s some evidence that increases in
GHG emissions caused by human actions are possibly linked to the increased frequency and severity o f
ENSO events (Trenberth and Hoar, 1996). If confirmed in future research, this would establish a direct
linkage between human actions affecting the global environment and one o f the largest sources o f disaster
risk in Peru. However, these hypothesized relationships are based on simulation analyses that exhibit a
high degree o f variability and unpredictability, making it difficult to establish clear linkages (AchutaRao
et al., n o date; Toniazzo, 2006). Regardless, as discussed in Chapter 2, Peru's contributions to overall
GHG emissions are very modest; they are estimated at 0.3 percent (CONAM, 2003). Furthermore, various
governmental agencies and projects-CONAM, the National Environmental Fund (FONAM), the
Intergovernmental Panel on Climate Change, INDECI, and the PROCLIM Project-are working toward
supporting Peru's compliance with the U.N. Convention o n Climate Change and the Kyoto Protocol.

5.14 UNDP's recent global report on Reducing Disaster Risk (2004) emphasizes the close relationship
between economic development, urbanization, and disaster risk globally. In Peru, the urban population
grew from 2.2 million (26% o f the national population) in 1940, to about 19 million (72.6% o f the
population) in 2004 (Angulo, 2005). The Lima-Callao metropolitan area alone accounts for an estimated
45% o f Peru's GDP, 59% o f i t s public budget and 84% o f i t s national tax base (Galarza, 2001). The
potential effects o f natural disasters are intensifiedby this progressive urbanization and associated factors:
the concentration o f people and housing in urban centers; a concomitant concentration o f private business
assets and public infrastructure investments; and an increase in economic interdependence, which inflates
the costs o f disaster-related business interruption. Together, these increase the human and economic
exposure to potential disasters in specific areas.

5.15 Conditions o f poverty and marginality o f the population further worsen the situation. The
National Statistics and Information Institute (INEI, 2004) estimates that, in 2004, more than h a l f (5 1.6%)
o f Peru's population lived in poverty, and 19.2% o f the population was under conditions o f extreme
poverty. Poverty increases vulnerability to disasters in many ways (IDB, 2000): construction o f housing
where land i s cheap, frequently on flood plains, river banks, steep hillsides, or reclaimed land; the lack o f
land use controls in these areas; poor quality construction; lack o f basic mitigation measures, such as
retention walls and adequate surface drainage; and the marginal livelihoods and limited capacity for
economic resilience o f many o f the extreme poor. T h i s vulnerability has been demonstrated many times in
the past, such as in Lima's 1966 and 1974 earthquakes and in Ica's 1963 and 1998 floods.

5.16 As this discussion shows, the causes o f natural disasters in Peru are many, the relationships
between causes and effects are complex, and the solutions are diverse. At least two common elements
surface throughout this discussion. One i s the role that human actions have in helping cause some natural
disasters and contributing to worsening the impacts o f others. The second i s the important role o f r i s k
assessment and disaster prevention in helping to avoid, or at least lessen the impacts o f natural disasters

102
on people, homes, agriculture and infrastructure. T o date, the government's approach to natural disasters
has been largely focused on mitigating the effects o f disasters once they have occurred, rather than
assessing ex ante the sources o f greatest risk, preventing disasters, and establishing priorities for disaster
prevention and mitigation through a consistent assessment o f past effects. Although there have been some
movement in the latter direction, especially over the past five years, the progress has been slow and
intermittent.

Institutional and Policy Framework

5.17 The first two parts o f this section discuss the policy framework and institutional network,
respectively, which comprise Peru's national system o f disaster mitigation, prevention, and response. This
system i s evaluated in the final section.

Policy Framework

5.18 The National Plan for the Prevention of, and Attention to, Disasters (Plan Nucional de
Prevencidn y Atencidn de Desastres), approved in 2004, defines national strategies, objectives, and
governmental programs for disaster prevention and risk reduction, for disaster preparations to reduce
long-term vulnerability to natural disasters, and for reconstruction and rehabilitation when disasters occur.
The Plan incorporates six specific strategies relating to 1) risk estimation, 2) preventive activities, 3) the
incorporation o f disaster prevention in public planning, 4) institutional strengthening, 5) community
participation, and 6) optimizing the response to disasters. For each o f these strategies, the Plan defines
programs, indicators and responsible institutions. However, it fails to define terms, specific operational
roles and responsibilities o f individual institutions, implementing mechanisms, or monitoring plans and
protocols. All o f these operational details are needed to successfully translate the National Plan into
action. The Plan also provides for the approval o f sectoral disaster plans at the national level within 30
days and regional plans by each regional government within 60 days, an unduly ambitious schedule. L a w
No. 28551 (May 2005) requires the preparation o f sectoral and governmental contingency plans
consistent with the National Plan.

5.19 National disaster planning i s also a key part o f the July 2002 National Agreement (Acuerdo
Nucional), a broad-based participatory reform agenda among key political and civil society groups that
identifies national and regional development priorities. Policy No. 10 o f the National Agreement covering
poverty reduction includes a specific policy to "develop a culture o f prevention and control o f r i s k s and
vulnerability to natural disasters, assigning resources to prevention, assistance and reconstruction."
Specific goals include having, by 2006, (1) the National System o f C i v i l Defense (SINADECI), which i s
responsible for coordinating the national response to (and prevention of) disasters, functioning at 100%;
(2) 100% o f public infrastructure projects incorporating risk control and prevention mechanisms; (3) 80%
o f Civil Defense Committees and offices o f regonal and local governments and public and private
institutions being h l l y organized and trained (100% by 2011); and (4) incorporating risk control and
prevention cumcula into 100% o f public education. Most o f these goals appear unrealistically ambitious
in view o f actual operations as o f December 2005. In addition, Policy No. 15 o f the National Agreement
on Food Security contains a concrete goal o f taking measures to confront threats to national food security,
including drought, desertification and disease.

5.20 W i t h the purpose o f formulating a national strategy for risk reduction, the government in 2000
created a Multi-sectoral Commission for Risk Reduction in Development, presided over by a
representative o f the President's Cabinet (PCM) and composed o f scientific experts and public sector
representatives. T h e Commission proposed a national effort to identify the main disaster threats in the
country, sources o f social and economic vulnerability, ways to institutionalize risk assessment and

103
control, and the production and use o f scientific risk information as a basis for the national strategy. It
stimulated similar regional efforts in Piura and Arequipa, which have proceeded with support from the
Geman government and initiated a study on incorporating risk analysis into public investment projects.
However, before the Commission was able to complete i t s work, it was deactivated in October 2004
(reportedly to prevent turf battles with INDECI), with i t s functions to be assumed by a yet-to-be-created
National Center o f Strategic Planning (Centro de Planeamiento Estratigico Nacional- CEPLAN).

5.21 Following the deactivation o f the Multi-sectoral Commission, the Ministry o f Economy and
Finance has assumed leadership in incorporating r i s k analysis into the formulation o f public investment
projects, and there has been some progress. A recent General Directive (Resolution 012-2002 EF 6801) o f
the National System o f Public Investment (SNIP) establishes the minimum requirements for feasibility
studies for public investments. Methodological guidelines have been developed to incorporate risk
analysis. Workshops to train public officials on guidelines for public investment projects have been
carried out in the Departments o f Piura, Arequipa, Lambayeque and San Martin. Guidelines for public
investment projects in the health and education sectors, incorporating risk reduction criteria, have been
developed.

5.22 T h e Andean Community's Program on Promoting Prevention in Andean Country Development


(Promocidn de la Prevencidn en 10s Procesos de Desarrollo de 10s Paises Andinos - PREANDINO),
supported by the Andean Development Corporation (CAF), has charged the C A F with incorporating risk
assessment and prevention broadly into the Community's development projects and processes. T h i s effort
stemmed from earlier regional evaluation o f the impacts o f the 1997-1998 El NiEo disaster and, given the
ineffective prevention o f major impacts from the 1997-1998 El NiEo (not just in Peru), a major emphasis
on risk prevention (CAF, 2000). The PREANDINO strategy prioritizes risk reduction in development
planning and seeks to have r i s k assessment methodologies incorporated by institutions like the PCM,
Ministry o f Economics and Finance (MEF), the National Environmental Council (CONAM), and
INDECI. The program's previous activities are currently o n hiatus, with progress continuing to be
monitored from i t s central office in Caracas, emphasizing promotion, transfer o f methodologies,
information exchange, and facilitating events in conjunction with the Andean Committee for Prevention
and Attention to Disasters (CAPRADE), the Andean regional project on Support for the Prevention o f
Disasters in the Andean Community (PREDECAN), and with MEF, with i t s focus on risk analysis in
public investment projects.

5.23 The Sustainable Cities Program (Programa Ciudades Sostenibles), executed by I N D E C I with
support from the UN Environment Program, i s focused on improving urban environmental planning and
management in over 30 countries by strengthening local capacities and participatory stakeholder
involvement (UNHSP, 2005). In Peru, a major emphasis has been on the prevention and mitigation o f
natural disasters in urban areas that have experienced unplanned growth. Activities include the mapping
o f urban land uses and soils, the development o f disaster mitigation measures, and the translation o f these
plans into local approval through municipal ordinances. Given Peruk rapid urbanization in recent years,
the activities o f the Sustainable Cities Program have been particularly important. Through October 2005,
the program had activities in 18 regions and 104 cities in Peru; 93 o f those cities have urban hazard maps
and 59 also have completed land use and disaster mitigation plans. O f these, 50 municipalities have
approved them with f o m a l decrees.

5.24 Other major ongoing programs dealing with risk assessment and disaster mitigation have arisen in
recent years. The Ministry o f Education and INDECI's Learning Prevention Program (Aprendiendo a
Prevenir), operating since 2004, i s trying to introduce a "culture o f prevention" into primary, secondary
and adult educational programs. The Andean Community's Andean Strategic Plan for Prevention and
Attention to Disasters 2005-20 10 (Plan Estratigico para la Prevencidn y Atencidn de Desastres 2005-
2010), approved in April 2005, has the goal o f incorporating the themes o f risk assessment and

104
monitoring, and disaster prevention into national and regional development plans, civil society programs,
and educational and training programs throughout the region, including Peru. Since 1999, the European
Commission-supported DIPECHO Program has supported training, the development o f early warning
systems, and disaster preparation and mitigation plans in 12 areas o f high risk in Peru. The European
Commission has also supported the Prevention o f Disasters in the Andean Community Project (Proyecto
Apoyo a la Prevencibn de Desastres en la Comunidad Andina - PREDECAN). This recently established
(2005) project began with the objectives o f promoting risk assessment and disaster prevention through
institutional strengthening and coordination, improved policies for disaster planning, development o f an
infomation system, and development o f methods and guidelines to incorporate risk analysis into regional
land use planning and development planning.

Institutions

5.25 The National System o f Civil Defense (Sistema Nacional de Defensa Civil - SINADECI), created
in 1972, provides the institutional framework for natural disaster planning and response in Peru. The
functions o f this system are to protect the population, prevent damage, and provide timely response and
rehabilitative assistance in the event o f natural disaster. SINADECI i s constituted by both public and non-
governmental entities, including the National Institute o f C i v i l Defense (INDECI), and i t s regional
offices; regional systems o f civil defense; and offices o f civil defense associated with individual sectors,
institutions and public agencies. In tum, regional civil defense systems are composed o f Civil Defense
Committees at regional, provincial, and district levels; and offices at the levels o f regional and local
governments. Many o f these offices, particularly at the local level, exist mostly "on paper."

5.26 I N D E C I i s the central coordinating mechanism o f the national c i v i l defense system. I t i s in charge
o f planning, organization, direction and coordination o f SINADECI's activities; and supervising and
coordinating the activities o f all organizations that receive public funds for civil defense purposes. I t s
leadership has historically come from the military, and it has had the reputation o f being a hierarchical
institution. I t s functions are evolving, though, in the current environment o f governmental
decentralization. The ministries also participate in civil defense activities under SINADECI and the
National Plan for Prevention and Attention to Disasters, which obliges the ministries to develop sectoral
plans for the prevention of, and attention to, disasters; this includes emergency plans, and plans for
rehabilitation and reconstruction activities.

5.27 The National Environmental Council (Consejo Nacional del Ambiente - CONAM), according to
Decree No. 048-97-PCM, has overall responsibility for coordinating national environmental management,
including land use planning studies and management. Environmental studies and management plans
constitute an important first step towards disaster prevention because they include analysis o f the
environmental conditions that exacerbate the impacts o f natural disasters. C O N A M i s in charge o f
approving the National Environmental Action Plan, regional environmental action plans, the National
Report on the State o f the Environment, and the National Plan for Environmental Management.

5.28 The GoP's ministries are responsible for developing operational plans for dealing with natural
disasters affecting their specific spheres o f interest. The Ministry o f Agriculture has the greatest expertise
when it comes to the management o f natural resources and river basins. According t o the L a w No. 25902,
this sector i s obliged to promote agricultural development within a watershed management framework
emphasizing socioeconomic and environmental sustainability. The Ministry's 2006 Strategic Plan
prioritizes the objective o f institutional strengthening and "implementing a system o f prevention and
attention to natural phenomena to lessen their effects on agricultural activity." Within this sector are,
among others, the National Food Safety Service (SENASA), the National Institute o f Natural Resources
(INRENA), the National Institute o f Agncultural Research (INIA), and the National Program o f
Watershed Management and Soil Conservation (PRONAMACHCS). INRENA i s the governmental

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authority responsible for environmental and natural resource management, including areas relevant to
natural disaster protection: regional watershed planning and land use mapping (through i t s OGATEIRN
office); proposing measures for ecosystem conservation and recuperation; and through i t s PERPEC
program, river channeling and water storage structures.

5.29 The Ministry o f Housing, Construction, and Sanitation, according to Decree No. 002-2002-
VIVIENDA, i s responsible for housing and urban development. Included in i t s mandate are the
formulation, proposal and execution o f policies and plans for risk prevention against natural disasters and
coordinating regional and municipal government efforts for urban housing and environmental
management. As noted above, the two most important economic effects caused by natural disasters in
Peru are housing damage and destruction. Accordingly, this Ministry has a key role to play in planning
and policymaking to prevent and mitigate disaster risk.

5.30 The National Meteorological and Hydrological Service (SENAMHI), through i t s 13 regional
offices, provides meteorological, hydrological, and other environmental and climatic data, information,
and forecasting to regional governments and civil defense systems.

5.31 Non-governmental institutions (NGOs) play an important role in natural disaster planning and
response. They continue to fill many o f the gaps in GoP efforts, interact closely and directly with regional
and local governments, and have played a major leadership role in recent years to put disaster prevention
and risk assessment on the national agenda. Major NGO efforts include those o f PREDES, Red Cross-
Peru, OXFAM, GTZ (Germany), Save the Children, World Vision, ITDG and CARE.

Evaluation of Policies and Institutions

5.32 Numerous international venues-from the June 1999 Hemispheric Meeting o f the International
Decade for Natural Disaster Reduction in Costa Rica, to the January 2005 International Conference on
Disaster Reduction in Japan-have emphasized that national governments must give greater priority to
disaster prevention, the reduction o f vulnerability, and ex ante disaster risk assessment. A fundamental
reason for this policy recommendation i s that government support for risk assessment and disaster
prevention can be viewed as an investment-an investment in a country's economic development (Clarke,
2000) without which the resultant costs o f natural disasters could, and have, set back a country's
economic progress. Consequently, it i s appropriate to consider where the greatest payoffs from public
funding exist in reducing risk, vulnerability and the destructive effects o f natural disasters, and what the
priority areas should be for the GoP's focus and attention.

5.33 As discussed previously, multiple public initiatives exist in Peru, begun mostly over the past five
years, which are addressing these priorities. However, the organization and integration o f these concerns
at the operational and budgeting levels in national, regional and local governments i s s t i l l far from
adequate. A major weakness i s the lack o f a functioning National Center for Strategic Planning to
articulate and help organize an effective long-term strategy for incorporating disaster prevention and r i s k
assessment in national and regional development planning and management; accomplishing these
objectives awaits the planned imminent formation o f CEPLAN.

5.34 Poverty and environmental degradation are primary factors in generating conditions o f
vulnerability to natural disasters. The effects run in both directions (UNDP, 2004). However, the
interrelationships between these three elements are not adequately understood or acted upon.
Environmental deterioration, including soil erosion and deforestation, contributes to the increased
likelihood o f natural disasters (especially floods, landslides and huaycos) and to amplifying the severity
o f these and other types o f natural disasters. Poverty, by i t s e l f and in conjunction with uncontrolled land
uses, greatly increases human vulnerability to natural disasters. Thus, reinforcing efforts to address both

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the environmental causes o f disasters (see Chapter 7) and the problems o f poverty that exacerbate
calamities, i s key to improving the effectiveness o f r i s k management and mitigating the impacts o f
disasters.

5.35 Addressing the root causes o f natural disasters requires dealing effectively with soil erosion and
deforestation. Although the agricultural sector has the greatest availability o f resources t o deal with river
basin and natural resource management, that sector’s efforts are diffuse, partial and not integrated. The
Ministry highlights some aspects (e.g., irrigation management), but neglects others such as soil erosion
and land use management. The Ministry o f Education’s recently initiated “Learning to Prevent”
educational program represents only a start in integrating issues o f prevention and r i s k into the
educational culture and requires monitoring o f i t s progress and impacts.

5.36 The National Plan for Prevention and Attention to Disasters has several key limitations. First and
most importantly, i t fails to adequately define terms, implementing mechanisms, and monitoring plans
and protocols for dealing with natural disasters. Operational and logistical plans for dealing with natural
disasters have yet to be developed at many regional, provincial and local levels o f government. L a w No.
2855 1 (May 2005) defines the requirements for disaster contingency plans so broadly that it has created
widespread confusion. The provision for the development o f sectoral disaster prevention plans has only
partially been complied with. As o f October 2005, only eight sectoral plans had been formulated and
approved (Ministries o f Commerce, Economy and Finance; Justice; Production; Health; Energy and
Mines; Transport and Communications; and Housing, Construction and Public Health); four were
finished and three were in the preparation process. At the regional level, as o f the same date, only four
regional plans had been approved (Amazon, Tacna, Arequipa and Moquegua), three were finished, four
were in revision and 15 were in formulation.

5.37 The National Plan should be reviewed and revised with broader participation by the public and
civil society institutions involved in i t s execution. This should be done to better define the terms,
mechanisms and resource allocations necessary for the Plan’s implementation and monitoring. Doing so
i s important, because c i v i l society groups were not involved in the development o f the original plans.
Simply issuing directives from I N D E C I and approving sectoral and regional disaster plans-for both
prevention and response4oes not guarantee that the institutions involved will actually incorporate these
plans into their strategic and operational plans. N o r does it guarantee that they will include budgetary
requirements in their annual budget programming. The Sustainable Cities Program has made some
progress in this regard, but i t has been limited by the lack o f management capacity o f many local
governments, lack o f commitment by many municipal authorities, and insufficient citizen participation.

5.38 Regarding disaster and emergency preparation, many serious weaknesses exist; in particular,
emergency operating plans and protocols are widely laclung. PREDES estimates that only 5 0 4 0 % o f
Peru’s 194 provinces have technical secretaries for civil defense, and that at most 5% o f 1,821 districts
have effectively functioning civil defense systems (PREDES, personal communication). Local
Committees o f Civil Defense have many limitations in staff, resources, organization, management and
training. The impacts o f these limitations have been demonstrated recently in emergencies such as the
June 2001 earthquake in southern Peru and the September 2005 earthquake in San Martin. Even worse,
cities such as Lima and Arequipa, with enormous risks o f natural disaster, do not have operational plans
for disaster preparation and emergency action.

5.39 In Peru, national, regional, and provincial levels o f government typically approve plans, laws, and
regulations with little attention to those existing at other levels o f government. The result i s significant
overlaps, gaps and inconsistencies. During the 1990s, a sectoral emphasis existed; with respect t o risk
management, most changes centered on the central organization o f SINADECI. T h i s model i s being
significantly modified in the context o f decentralization. Nevertheless, it i s occurring without clear plans

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and orderly adjustment. The sectors (ministries) only indirectly count on specific mandates regarding
prevention and other areas. However, i t i s possible to improve mandates and directives to allow clearer
integration o f reduction o f risk and vulnerability in the context o f national and regional policy. Given i t s
legal and historic responsibilities, INDECI has the task o f generating instruments and regulations to better
promote and monitor the changing functions o f the different elements in the national c i v i l defense system.

5.40 Progress towards the goals o f the National Agreement has been mixed. Some progress has been
made in incorporating risk analysis and prevention into public infi-astructure projects (Measure 2) and in
building awareness o f risk and disaster mitigation into the educational curricula (Measure 4). Progress
toward Measure 1 (incorporating a focus o f risk prevention and control throughout SINADECI) has been
limited by the traditional lack o f focus on risk and protection (versus that o f response to natural disasters)
in SINADECI (notably, INDECI) and by the lack o f specified indicators. T h i s i s confirmed by the small
proportion o f INDECI's total budget in 2003-2005 that i s accounted for by prevention and risk analysis-
related expenditures (Table 5.7). Although the percentage o f the budget devoted to "risk analysis"
declined sharply in 2005, this was due to a transfer o f these responsibilities-although not associated
budgetary increases-to the local and regional levels. Well over h a l f o f INDECI's budget continues to be
spent on emergency and disaster response. Table 5.7 also shows, notwithstanding this devolution of
responsibilities, that INDECI's staff expanded significantly between 2004 and 2005.

2003 2004 2005


Total Budget (Soles) 59,804,851 85,315,955 86,432,560
Risk Analysis (%) 2,905,949 (5%) 3,462,573 (4%) 542,594 (1%)
Prevention (%) 8,162,479 (14%) 11,488,613 (13%) 11,961,225 (14%)
Total Staff 443 442 603
Permanent Sstaff 103 102 102
Contracted by SNP 340 340 501

5.41 Progress has been reported in the training o f c i v i l defense committees, particularly at the regional
and provincial levels, but there are n o statistics or indicators to confirm this. In 2004, INDECI transferred
its training functions to the regional governments, but without the financial resources to achieve it. The
goals set out in the National Agreement do not necessarily relate to the reduction o f the poor's
vulnerability to disasters, as one would hope. Many have argued that the State should have an explicit
policy making the prevention o f disaster and reducing disaster r i s k a national priority. This would
conform to the objectives set forth at the 2005 International Conference on Disaster Reduction and other
venues that have proposed increasing the priority and political commitment given to disaster reduction
and mitigation globally.

5.42 The process o f decentralization provides an opportunity for a new vision and emphasis on disaster
prevention and risk assessment throughout Peru. Decentralization places more responsibility on regional,
provincial and local governments to plan and to manage economic development jointly with the reduction
o f vulnerability and risk. However, INDECI remains a hierarchical institution in many ways, and much
confusion exists regarding the assignment o f roles and responsibilities under decentralization. The lower
levels o f government can positively influence the vulnerability o f their populations to r i s k and natural
disaster through a variety o f legally institutedmeasures: regional and local development plans (Planes de
Desarrollo Concertados), participatory budgets (Prespuestos participativos), and land use planning
(Planes de Ordenamiento Territorial). However, the organizational, technical and management abilities
o f regional and local governments fall far short o f the responsibilities assigned to them by law, and they

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have yet to build their new responsibilities into their budget planning. In many cases, the N G O sector f i l l s
the gaps, working with regional and local governments. However, financial resources, technical support,
training and improved management capacity are urgently needed to enable local governments to comply
with their mandated new responsibilities. Local and regional governments have yet to build into their
operating budgets the expanded authority now given them for natural disaster prevention and response.

5.43 Land use planning i s an important instrument for the prevention o f natural disasters. However, the
national framework for land use planning-Decree No. 087-2004-PCM covering Zonzjkacidn Econdmica
y Ecoldgica-is subject to various interpretations and types o f planning processes. As a simultaneous
responsibility at all levels o f government, this demands a much-improved level o f integration and
consistency. Thus far, the statutory laws o f the sectors, regional governments and municipalities have not
adequately generated this outcome.

5.44 Although risk assessment methodologies have been incorporated into public investment projects,
there are both political and technical aspects that make this a slow process. The introduction o f greater
technical requirements into the National System o f Public Investments (SNIP) will also require more and
better information about threats and vulnerabilities, as well as dissemination o f information to building
inspectors who provide the critical link to contractors. Incorporating r i s k reduction into regional and local
development plans in a coordinated way requires a concerted effort by an organization like the incipient
CEPLAN.

Recommendations

5.45 There has been positive, if slow, movement toward recognizing the importance o f disaster risk,
vulnerability, and prevention on the part o f Peru’s governmental and nongovernmental organizations.
This i s clear from the incorporation o f these concepts in major documents and efforts such as the National
Agreement and the National Plan for Prevention and Attention to Disasters. Yet, as a matter o f practice,
the focus i s still often one o f attention to emergency events and dealing with their immediate impacts,
without a sufficiently integrated response that emphasizes prevention, vulnerability analysis, and risk
assessment. Suggested recommendations address needed changes in policy, technical assistance, and
public investments:

Policy

1. Highlight disaster prevention and the reduction o f disaster r i s k and vulnerability as a national
priority. The prevention o f disasters and the reduction o f disaster risks and vulnerability should be
highlighted as a national priority within the National Agreement, the National Plan, and public
sector entities and development planning at all levels. In the longer run, disaster risk reduction
and prevention should also be promoted not just within government, but at all levels of c i v i l
society as well, including NGOs and the private sector. I t i s important to strengthen technical and
organizational capacities, especially at the regional and local levels, to manage risk reduction and
organize the response to natural disasters.

2. Create an Office for Reduction o f Vulnerability to Natural Disasters as part o f the establishment
and funding o f the new National Center for Strategic Planning (CEPLAN), as has been planned
since 2004. This could be done in the short term and might be complemented by establishing a
parallel office in the Ministry o f Housing, Construction and Sanitation, given the major impact o f
natural disasters on housing. Such a move would also help to promote a consistent unification o f

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disaster prevention and risk assessment policies across the various ministries and functional areas,
from development planningto watershed management to public works projects.

3. Support for disaster planning (prevention and emergencies) and incorporation o f checks and
balances in the context o f decentralization. SINADECI i s organized better than most areas o f
government to adjust to the new decentralization framework law, but much needs to be done. A
clear articulation and structure o f specific operational roles and responsibilities for disaster
prevention and planning at each level o f government i s needed. In the short term, the National
Plan can be much more fully articulated with clear guidelines specifying the allocation o f roles
and responsibilities among levels o f government and specific offices within government, clear
budgetary allocations, and mechanisms and indicators for evaluating performance. INDECI’s
leadership role in this new structure should be clearly defined, perhaps in terms o f the
organization o f disaster prevention and response, establishing methods and indicators for r i s k
assessment and monitoring, training and education. Changes to I N D E C I will not come easily,
given i t s traditional resistance to change. Regulations governing the preparation o f contingency
plans should be articulated and enforced. Training i s needed in disaster assessment and planning,
risk analysis, public infrastructure project planning, public health, and other areas. Also needed
are better communications and the development o f early alert systems.

4. Better budgetary planning, greater financial resources, and greater accountability in disaster
prevention and planning. Although responsibilities for disaster planning are being devolved t o the
regional and local levels, financial resources are not. At the provincial and local levels, technical
expertise, staff and budget resources are woefully inadequate to handle the increased
responsibilities brought on by decentralization. Regional and local governments are in the early
phases o f incorporating disaster planning into their budgets. A long-term commitment to better
budgetary planning, both at the national and regional levels, can be better used to assure that
disaster prevention and risk assessment are included in the operational plans o f governments and
ministries. The use o f regional government revolving funds should be considered for dealing with
natural disasters, much like that o f I N D E C I at the national level.

5. Greater participation in developing disaster plans. T o better define roles, resources, and specific
mechanisms for its implementation and monitoring, SINADECI’s National Plan for Prevention
and Attention to Disasters should be revised with the participation and agreement o f the actors
and institutions involved in i t s execution. These reviews and revisions should be conducted in a
transparent, inclusive and participatory fashion. T o incorporate the financing o f activities and
projects into annual budgetary programming, it i s critical that sectoral and regional plans be
incorporated into the strategic plans o f the sectors, regional and local governments and,
importantly, into their institutional operating plans.

6. Establish a national framework for integrated watershed management. The institutionalization o f


watershed management should be redefined. T h e Independent Watershed Authorities
(Autoridudes Autdnomus de Cuencus) have structural problems originating from their design, in
that they ignore the need o f regional and municipal governments to elaborate land use and
development plans. In addition, lack o f representation and inadequate financing are
commonplace. Especially in the context o f decentralization, it i s important to give regional and
municipal authorities legal and management authority over river basin management, as well as
adequate financial resources. Part o f this effort should be the establishment o f early warning
systems and monitoring systems in the main river basins. T h i s will help identify the processes
that generate environmental degradation in the f i r s t place and that lead to greater vulnerability to
natural disasters. Examples o f such processes are poor land use management, soil erosion,
deforestation, mining, sources o f surface water contamination, and the construction o f human

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settlements in r i s k y areas. In organizations like PRONAMACHCS, indicators o f environmental
deterioration and increased risk vulnerability to disaster in watersheds should be considered an
additional criterion for i t s targeting o f critical watersheds, one that would complement i t s existing
focus on poverty. An effort should be made to identify and systematize the lessons and successful
experiences in watershed management and soil conservation, not only o f PRONAMACHCS but
also o f NGOs.

7. Establish a policy on land use planning. Land use planning i s a key tool for r i s k reduction,
because it identifies spatial uses for different human activities-housing, infrastructure, and
productive activities like agnculture. Furthermore, land use planning identifies critical
constraints, risks and limitations arising from both human activity and the environment. W h i l e
"Economic and Ecological Zoning" i s a widespread requirement across ministries and different
levels o f government, i t s interpretation and requirements are diffuse and ambiguous. T h i s needs
better articulation and consistency, with priority given to disaster prevention and mitigation; this
could be a role for both C O N A M and CEPLAN. Land use planning should be better coordinated
between central, regional and provincial governments. This could be enhanced through a general
law on land use planning-a revision o f Decree No. 087-2004-PCM-to clarify the roles and
functions o f land use planning at the three levels o f government, to specify the processes o f civil
society participation, and to guide the allocation o f resources.

Technical Assistance

1. Promote disaster prevention and risk assessment through the comprehensive incorporation o f
planning and management tools at all levels o f government. Indicators o f vulnerability and risk
should be incorporated into risk management and planning at regional and local levels, into
budgeting, into project design and management, and into the formulation o f development and
land use plans. This requires the development and application o f risk and prevention
methodologies, indicators and instruments to assess vulnerability and risk, including early
warning systems, as well as their use in establishing baselines; measuring trends in key
indicators; proposing goals for r i s k and vulnerability reduction at regional and local levels; and
monitoring policies, programs, plans and outcomes. This will necessitate a much greater effort to
train and build human capital in these areas, especially at regional and local levels.

2. Incorporating risk analysis in public investment proiects. The efforts o f the Multi-sectoral
Commission and, more recently, the MEF should be strengthened to incorporate r i s k analysis and
disaster prevention into the formulation o f public infrastructure and investment projects,
beginning with the SNIP. T h i s will necessitate greater attention to building standards as well as
strengthening capacities at regional and local levels, especially for project managers, public
works inspectors and quality control specialists. All this will require a much greater effort in
training and technical assistance.

3. Management o f risks in urban planning and development. It i s also necessary to better incorporate
risk and vulnerability assessment into the formulation o f urban plans. In the case o f the
Sustainable Cities Program, it i s necessary to evaluate, based on completed studies and plans, the
manner and extent to which participating municipalities have actually controlled urban growth
and managed urban development plans. On this basis, technical assistance programs could be
improved and framed appropriately, given the actual conditions facing municipal officials. It i s
also necessary to strengthen the processes o f citizen participation and the buy-in o f local
authorities in the design and execution o f these studies.

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4. Diffusion o f appropriate and safe construction technolonies. Reducing the risks in housing
construction will require, especially in poor urban sectors located in risky locations, taking
advantage o f h o r n construction technologies and devising mechanisms for improved technical
assistance for self-built housing. In rural areas, the improvement o f traditional construction
systems (e.g., adobe) will require direct and efficient mechanisms to advise the rural population
about safe construction practices and standards.

Investments

1. Evaluate alternative mechanisms for financing disaster response and transferring risk. The
decentralization o f the national framework for dealing with disasters, as well as the highly
variable incidence o f disasters over time and space (see Tables 5.1-5.6), suggests the need for
new funding mechanisms to enable regional and local governments t o access the necessary
financial resources to deal with disaster mitigation. One possible mechanism would be a national
fund for cofinancing disaster mitigation investments in local infrastructure. Regional and local
governments are hard-pressed to finance these investments solely from locallregional funds.
Through cofinancing, the national government could exert some influence in assessing critical
needs throughout the country and directing resources to the areas o f greatest need and potential
payoff. The proposed fund would build on the current fund available to I N D E C I in times o f
disaster, but would direct funds to help meet local needs, where local funds are also available, and
would be spent on disaster prevention, not just emergencies.

2. Consideration should also be given to alternative mechanisms for transferring risk. Disaster
insurance i s seldom used in developing countries for a variety o f reasons (Freeman, et al., 2003):
the high probability o f extreme weather events, the difficulty o f spreading risk in small
economies (relative to the magnitude o f risk), the adverse selection problem, and thin markets for
insuring risk. However, a number o f potential risk transfer mechanisms could be considered for
Peru: catastrophe insurance or bonds, access to an international insurance fund (such as that
proposed by the United National Framework Convention on Climate Change), private-public
partnerships (such as the Turkish Catastrophe Insurance Pool), and parametric earthquake
insurance. Some initial investigations into the potential for using broad-based catastrophe
insurance in Peru have been made by the Peruvian Association o f Insurance Companies (APES).
The company Cooper Gay P e d Corredores de Reaseguros S.A. has recently presented a proposal
for catastrophe insurance to INDECI. These and similar initiatives should be considered further.

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Summary of Policy Recommendations

Recommended Medium- and


Objective Recommended Short-Term Actions
Long-TermActions
Emphasize disaster prevention Establish and fund Vulnerability
0 Incorporate disaster
and the reduction of disaster Reduction Office in CEPLAN.-(Cost: prevention and risk reduction
risk and vulnerability as low) across all levels o f
national priorities. Establish Vulnerability Reduction government, NGOs, education,
Office in Ministry o f Housing. (Cost: private sector, etc. (Cost:
low) moderate to h g h )
0 Develop and apply risk assessment Incorporate risk and
and prevention methodologies, vulnerability assessment in
indicators, and instruments to assess urban plans. (Cost: moderate to
and monitor vulnerability and risk in high)
national and regional plans, program Establish a national
and project planning, infrastructure framework for integrated
design, etc. (Cost: moderate) watershed management to help
Strengthen MEF efforts to incorporate avoid natural disasters. (Cost:
risk analysis in public infrastructure moderate)
projects and in building design
standards. (Cost: moderate to high)
Invest in early alert systems in
targeted areas. (Cost: moderate to
high)
Strengthen institutions 0 National Plan needs to identify roles, 0 Foster better budgetary
involved in disaster planning responsibilities, budgetary allocation planning, and greater
and management, especially in guidelines, and p e r f o m c e accountability in disaster
the context of decentralization. indicators for national (INDECI), prevention and planning.
regional, and local entities. (Cost: (Cost: l o w to moderate)
moderate) 0 Foster greater civil society
Increase financial resources spent o n participation and greater
disaster prevention and planning, transparency in disaster
especially at regional and local levels, prevention and planning.
given decentralization framework. (Cost: low)
(Cost: high) 0 Establish national and regional
Improve training, at all levels o f policies o n land use planning,
SINADECI (especially at regional and and roles o f different levels o f
local levels), in disaster planning, risk government, as part o f disaster
analysis, public infrastructure prevention effort. (Cost:
planning, etc. (Cost: moderate to high) moderate)
Diffuse information o n safe
construction technologies. (Cost: l o w
to moderate)
Evaluate alternative 0 Establish national fund to facilitate co- 0 Evaluate feasibility o f
mechanisms for financing financing o f local and regional catastrophe insurance and
public and private responses infrastructure and disaster prevention other risk transfer
to natural disasters. projects. (Cost: high) mechanisms. (Cost: l o w to
moderate)

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CHAPTER 6

SUSTAINABLE FISHERIES THROUGH


IMPROVED MANAGEMENT AND POLICIES

Peru S fisheries resources support one of the country’s most important economic
activities and provide fundamental environmental services. The Peruvian anchoveta
remains the largest single stockfishery in the world. The occurrence of El Niiio Southern
Oscillation drives extreme fishery-resource volatility. Combined with the expansion of
fishing and processing capacity and weak sector governance, this volatility has resulted
in resource depletion, extensive marine ecosystem change, widespread environmental
degradation and dissipation of resource rents, and loss of social and economic benefits.
Meeting these challenges w i l l require an open and transparent participatory process to
achieve the following goals: (i) Substantially increase net benefits from the sector by
reducing its capacity and effort in order to bring net benefits in line with natural
productivity and maximum economic yield, (ii) Improve sector governance and the
distribution of equitable benefit. (iii) Issue effective environmental regulations with
independent oversight of enforcement. (iv) Strengthen the sectors research capacity to
support an ecosystem approach to managing fisheries and coastal resources. (v)
Establish a system of Marine Protected Areas. (vi) Revise and modernize the sector’s
regulatoly framework. 78

Introduction

6.1 About fifty years ago, Peru started to develop an industrial fisheries sector, based o n i t s
r i c h anchoveta and sardine resources. These resources account for nearly 10% o f the global
marine catch. In addition to being a major natural resource for Peru, they are key constituents o f
the Humboldt Current Large Marine Ecosystem, one o f the most productive in the world.
However, even when technological innovations and an expanding fleet caused the resources to
pass from a situation o f abundance to one o f scarcity, n o major policy innovations have been
introduced into the sector, except for privatization. Successive governments have shied away
from tackling critical issues. T h i s results from the problems’ perceived complexity and political
sensitivity, and strong and articulate commercial lobbies pursuing narrowly focused interests.
Consequently, many fish resources are over-exploited or in a precarious recovery phase; the
sector’s capital investments are used inefficiently; the sector i s a major source o f pollution due to
handling and processing inefficiencies; and the contribution o f the industry to social welfare,
nutrition, and employment remains very modest. Moreover, while medium-term market prospects
for fishmeal and fish o i l remain promising, biotechnology may enable the development o f
alternatives to these products, and long-term buoyant and remunerative export markets for
fishmeal and o i l cannot be taken for granted. Therefore, to ensure a sustained and enhanced
contribution to national welfare, it i s very important to look critically at the entire policy and
institutional framework governing the fisheries sector. The primary focus o f this chapter i s the
anchoveta fishery; however, the economic and social importance o f the other fisheries, and in
particular the artisanal fisheries, must not be forgotten.

’*This chapter was prepared by Marea Hatziolos and Cornelis de Haan. The chapter draws significant information
from a background report prepared by Patricia Majluf, Albert0 Barandiarin, and Juan Carlos Sueiro (2005).

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Background

6.2 Peru’s fishing grounds are the richest in the world, and anchoveta remains the largest
single stock fishery in the world. Over 300 m i l l i o n MT o f fish have been harvested from Peruvian
waters during the almost 50 years o f industrial fishing (from 1960). Since 1960, the average
yearly catch has been 6.56 m i l l i o n MT. During the last seven years, since the last El N i i o in
1998, the average yearly catch has been 8.65 million MT (Tables 6.1 and 6.2).

Table 6.1. Landings of Maritime and Inland Resources According to Use:


January-December 2005 (Thousand Metric Tons Live Weight - TMB)
TYPE OF USE

I Anchoveta I 8,797.1 I 8,530.6 I -3.0 I


I Other Species I 13.5 I 0.1 I -99.3 I

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Table 6.2. Landings o f Resources by Use, According to Species:
January-December 2005 (Thousand Metric Tons Live Weight - TMB)
SPECIES Total Fish M e a l Canned Frozen Cured Fresh
TOTAL 9,285,365 8,530,657 87,554 305,213 51,599 310,342
Anchoveta 8,555,630 8,530,551 14,156 498 10,425
Tuna 10,902 9,861 1,008 33
Mackerel 44,992 25,256 3,345 2,913 13,478
(Caballa)
Horse mackerel 83,469 19,723 2,253 2,603 58,890
(Jurel)
Squid (Calamar) 8,783 169 6 165 2,449
Flying Squid 276,144 2,875 226,925 40 46,304
(Pota)
Shell (Caracol) 2,730 497 1,65 1 582
Scallop (Concha 11,290 10,656 634
de Abanico)
Crayfish 9,226 13 8,410 803
(Langostino)
Flathead M u l l e t 6,403 465 5,938
(Lisa)
Hake (Merluza) 28,671 21,737 158 6,776
Silversides (Pejeney) 8,957 299 8,658
Other Species 238,168 106 15,004 22,266 34,995 165,797

6.3 The industrial purse seine fisheries for small DelaPics mostly target anchoveta (Engradis
ringens). The other major pelagic fisheries target sardine, horse mackerel, and chub mackerel.
Historically, annual recorded landings o f anchoveta have varied from 1.2 to 12 m i l l i o n MT, and
are currently in the 8-10 m i l l i o n MT range, or approximately 10 percent o f the global annual
marine catch. Other major pelagic fisheries target sardine, horse mackerel, and chub mackerel.
Almost the entire catch o f anchoveta and sardine i s reduced to fish meal and o i l for export,
primarily to Europe and China, t o supply a growing livestock and aquaculture industry with
essential animal feed ingredients. Only a small fraction (2 t o 7 percent) o f the total marine catch,
including the artisanal catch, i s used for direct human consumption.

6.4 Other industrial fisheries target hake (Merluza, or Merluccius guyi), squid, and other
demersal (bottom) species. Hake i s a popular domestic food fish, with a strong export market.
Average annual catches have been around 70,000 MT over the last nine years, but fishing
activities have caused substantial variations-from less than 8,000 MT t o over 100,000 MT in
recent years. In 2003, overfishing l e d t o the collapse o f the fishery (with a catch o f less than 8,000
MT) and the temporary closure o f the fishery until stocks could rebound. The fishery was
reopened in 2004, when recorded catches reached 35,000 MT. Recorded squid catches have also
varied considerably, fi-om less than 10,000 MT in the 1990s to over 200,000 MT in 2004 and
2005.

6.5 The artisanal fisheries target a wide variety o f species, mainly for human food. The total
catch varies from around 100,000 t o 200,000 MT per year. Official estimates indicate more than

116
40,000 people are employed, with informal estimates putting the figure at 100,000 persons. The
resources targeted by these fisheries are diverse, with fish accounting for about 80 percent,
invertebrates for 17 percent, algae for t w o per cent and other resources for one percent.

6.6 The inland fisheries o f the Amazon and Highland areas have landings estimated at
between 30,000 and 80,000 MT per year, mostly for subsistence use. The fisheries in the
Highlands focus mostly o n the lakes, and in particular Lake Titicaca, targeting indigenous
species, especially the “ispi”, but also introduced species, such as trout.

6.7 Aquaculture i s a rather recent industry, with little diversification. The shrimp industry,
mostly in the country’s extreme north, suffered f r o m “white spot” disease in the late 1990s, but
with improved farm practices and disease control measures, production recovered to about 5,000
MT in 2004. Culture o f Peruvian scallops has also shown strong growth, with a production o f
10,000 MT in 2004.

6.8 Peru’s extraordinarily r i c h marine fisheries resources result from an exceptional


upwelling o f cold, deep water nutrients brought to the surface by the Humboldt Current, which i s
the dnving force o f the Humboldt Large Marine Ecosystem (LME). However, the LME i s subject
to major periodic disturbances in the form o f El Ni60 Southern Oscillations (ENSO). W a r m
westerly winds drive the nutrient-rich Humboldt Current further south and offshore, replacing it
with warm water f r o m the Southern Equatorial Current. During EE Ni6o years, plankton levels
decline and changing ocean temperatures contract and distend the habitats o f different species.
The nutritional base o f the food chain radically contracts, altering the complex cascade o f
predator-prey relationships with far-reaching impacts o n the marine ecology, the fisheries, and
the economy (see Figure 6.1).

117
Figure 6.1. Relationship between Anchoveta Landings and Mean ENSO Index,
Demonstrating the Inverse Relationship between the Two

Anchoveta landings and ENSO


14000000 , , 2

12000000 1.5
1
10000000
E 0.5 8
8000000 ‘0

.-
f: E
0
$
u)

.-
‘0
6000000
-0.5 3
E
E 4000000
-1
2000000 -1.5

0 -2

Importance o f the Sector

6.9 The fisheries sector remains a significant contributor to Peru’s economy. I t i s the second
largest earner o f foreign exchange after mining, accounting for between US$1 and 1.7 billion
annually in exports (Peru Statistical Yearbook, 2003), or 11-16 percent o f total export earnings.
I t generates about 4 percent o f rural employment, and comprises approximately 1 percent of
GDP. However, the sector i s currently a minor source o f revenue for the public sector. Finally,
one-fifth o f the animal-protein intake o f the average Peruvian i s derived from fish. The poor are
even more dependent on fish as a source o f protein and nutrition.

6.10 In addition to their economic and social value as a fishery, anchoveta and small pelagic
stocks sustain a large and diverse food web, including a large variety o f marine mammals and
bird species. These, in turn, generate an array o f ecosystem goods and services that are essential
to maintaining marine biodiversity and productivity, but whose ecological, economic and social
value are only now beginning to be recognized. For example, the marine birds and mammals that
rely on anchoveta as a major food source support a growing marine ecotourism industry in the
Pisco-Paracas area, valued at some US$7-9 million per year. The reserve system i s a
chain o f islands and peninsulas protected for the exploitation o f guano generated from the
droppings o f these fish eating birds. T h i s system has been identified as a marine biodiversity hot
spot, and a proposal to designate the entire system o f islands as a Marine Protected Area network
i s pending in INRENA. Furthermore, the guano from these islands supports a growing niche
market for organic fertilizer in Europe and the U.S. Exports could generate alternative livelihoods
for coastal fishers and help pay for the maintenance o f the guano reserve system. Thus, anchoveta
stocks have the potential to support not only a robust industrial fishery, but also artisanal
livelihoods based on secondary markets for the goods and services they produce. Figures 6.2 and

’’“Guano” i s the generic name for the fertilizer produced from the droppings of seabirds, mainly cormorants, boobies,
and pelicans.

118
6.3 provide a simplified illustration o f the complex trophic relationships and show the
anchoveta's pivotal role in the Humboldt Current LME.

Figure 6.2. Main Trophic Interactions in the Pelagic Ecosystem off Peru
(from Muck, 1989)

Figure 6.3. Schematic of Trophic Interactions in the Peruvian


Upwelling System, with and without Fisheries
Sin pesquerias Con pesquerias
la)
Otros
Aves I@I
Otros
Aves
Marinas
depredadores Marinas depredadoreo

38.4%

ZooPlancton Anchovetas Zooplancton => Anchovetas

T
Fitoplancton Fitoplancton

No No
aprovechado aprovechado
(se preciplta) (se precipita)
Nutrientes Nutrientes
(N. P. W (N. Pvgil

6.11 There have been numerous studies o n the fisheries sector, including a Fisheries Sector
Note prepared with W o r l d Bank support (World Bank, 2003b). M o r e recently, M a j l u f et al,
(2005) produced a detailed environmental assessment o f the fisheries sector. That report i s a

119
central background source for this chapter. All studies emphasize the need to strengthen
governance, transparency, and objectivity in decision-making.

Specific Issues

6.12 The tremendous potential productivity o f the Peruvian fisheries sector can be much more
efficiently and sustainably exploited, its negative environmental and social impacts reduced, and
its contribution to the Peruvian society enhanced. K e y issues that must be addressed
synergistically to achieve these goals are (a) overcapacity in the fishing and processing sectors,
(b) negative environmental and ecosystem impacts, (c) weak governance and a deficient
environmental oversight and regulatory framework, (d) inadequate institutional arrangements and
the role o f civil society, and (e) the unrealized contribution t o Peruvian society. These issues are
examined below.

6.13 Peru i s not alone in facing these problems. Overfishing and overcapacity problems beset
many fisheries. However, the sheer scale o f the anchoveta fishery (landings can be w e l l in excess
o f 100,000 MT in a single day), the extreme volatility o f changes in the fish stocks caused by El
Niiio events, and lack o f a broad consensus roadmap in a volatile political climate have a l l
contributed to making the problems appear intractable.

Overcapacity

6.14 Perhaps the greatest single factor currently threatening the fisheries sector i s fleet and
processing overcapacity, fueled by continuous growth in the fishhold storage capacity o f the fleet
and characterized by an excessive number o f economically inefficient fishmeal processing plants.

6.15 The industrial anchoveta fleet i s comprised o f steel purse seiner vessels with more than
110 MT o f hull capacity, and the “Viking Fleet”, which consists o f wooden vessels with a storage
capacity o f 32-110 MT. The steel vessels include 655 with a total fishhold capacity o f a little
more than 183 thousand MT. The wooden fleet includes 604 vessels and has a combined fishhold
capacity o f 35 thousand MT. The latter fish the anchoveta stocks in the north-central part o f their
distribution and, in violation o f existing regulations, frequently enter into the restricted 5-mile
coastal zone reserved for artisanal fishing. The recent fleet expansion has taken place almost
entirely in the wooden Viking Fleet and has effectively doubled the number o f vessels in
operation.

6.16 This overcapacity i s demonstrated in several ways. The anchoveta fleet i s permitted to
fish for only 120 days, although a 200-day fishing season would be possible and s t i l l provide
adequate protection for the juvenile anchoveta. The fishhold capacity o f individual vessels is, o n
average, 3 - 4 times that required for an average day’s landings. It i s estimated that, in 2005, the
steel purse seiners used an average o f only 3 1.5% o f their fishhold capacity and the wooden fleet
only 25.4%.

6.17 The fishmeal industry consists o f 127 processing plants with an installed capacity o f
nearly 9,000 MT per hour. Forty-three large plants account for over 50% o f the processing
capacity. However, only 35% o f the installed capacity i s able t o produce the finest quality
fishmeal (ACP), i.e., meal with the highest protein content, which requires fresh fish for
processing. The greater portion o f the capacity (65%) and the largest number o f processing plants
(80) are geared toward producing conventional fishmeal, which permits the use o f lower quality
r a w material in processing, adversely affecting product quality and price. In 2003, the total fish-

120
meal processing capacity was estimated t o be 9,000 MT per hour, equivalent to about 170,000
MT per day in three shifts, or 30 million MT per year (based o n 200 days o f fishing per year),
thus exceeding the available fish supply by more than 200 percent (World Bank, 2003b)

6.18 Overcapacity has two distinct effects: (i) fish-resource depletion and marine ecosystem
imbalance, and (ii)
dissipation or loss o f economic benefits f r o m the sector.

Depletion of Fish Resources and Marine Ecosystem Imbalance

6.19 The indicators o f overfishing are clear in the hake fisheries. The average length o f the
hake fish caught has declined from 45 c m in 1971 t o 25 c m in 2001. Stocks have collapsed twice
in the last 25 years, most recently in 2003, when catches registered less than 8,000 MT, a decline
from nearly 120,000 MT in 2001. In response to its overfished status, the fishery was closed
temporarily in 2003, but reopened shortly thereafter, and stocks are now recovering.

6.20 In the anchoveta and small pelagics fisheries, the picture i s more complex. Overfishing
has clearly been one o f the key factors contributing to the periodic collapses o f the fishery.
However, there i s also a strong El Niiio effect, because during El N i i i o years, catches have
periodically declined to less than 2 million MT; this i s a quarter o f the yield in normal years. The
relative importance o f these two factors i s not clear. Partly because o f fishing restrictions during
the last El Niiio (1998), the fishery has rebuilt rapidly, with landings o f about 8 million MT
(Figure 6.4), but fleet overcapacity presents a constant threat o f overfishing and ecosystem
imbalance.

Figure 6.4. Variations in the Historic Catch o f Marine Fish along the Peruvian Coast,

Total Catch 1950-2004. Scale 0 to 14 million MT

1 I I 1 I I I
14.000.0

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Source: Fisheries statistics from FA0 Information Portal (2005)

121
Total Catch Excluding Anchoveta (Engruulis ringens) and Sardines
Scale 0 to 2.5 million MT

1950 1855 1960 1965 1970 1975 1980 1985 lag0 1995 2000

Anchoveta Horse mackerel Flying S q u i d


‘e‘ Sardines Menhaden Bonyfish

Mackerel Anchoveta (other) Hake


O t h e r species

6.21 The development o f the anchoveta fishing industry has caused the anchoveta biomass
available t o birds to drop from about 14% to only 2% n o w (Figure 6.2). As a result, the
population o f seabirds in the coastal areas o f Peru has declined f r o m about 15 million in the
1950s and 1960s to about 2 million. Similar declines in marine mammal populations are evident,
demonstrating that the marine ecosystem has altered radically from i t s status several decades ago.
There has also been a marked decline in f i s h stocks in the inland fisheries, where a combination
o f habitat destruction and pollution by extractive industry (mining and oil), and overfishing have
l e d to declining catches.

Economic heficiency

6.22 Based on estimates o f fleet overcapacity presented above, the capital invested in the fleet
may be as much as 4-5 times higher than necessary. T h i s overcapacity reduces crew employment
t o about 120 days per year, and there i s political pressure to expand the fishing season to the
detriment o f resource recovery”. This overcapacity, combined with resource fluctuations, has led
t o the reported major indebtedness o f the sector and absorbs capital that could be used t o diversify
the economy. A more in-depth understanding o f the sector’s debt structure i s necessary. Tax relief
for the industry resulting from i t s debt burden means that the sector’s contribution to national

However, the awareness o f Peru’s policymakers seems to be increasing. F o r example, in 2005 the Vice Minister for
Fisheries, commenting on the sector’s overcapacity, noted the paradox that the anchoveta fleet today operates a little
more than 120 days per year, but in that period, the fleet i s able to catch more than 8 million MT o f anchoveta-its
entire year’s quota (Majluf, 2005).

122
welfare i s disproportional low. W h i l e exact data are not available, and favorable market
conditions for fishmeal and o i l have reportedly reduced the debt from US$1.8 billion in 2000 to
less than US$1 billion in 2003, the highly volatile nature o f the pivotal anchoveta fishery makes
the restructuring o f the industry critical for the sector’s long-term sustainability. However, this
capital i s currently ‘locked’ into the vessels and cannot readily be converted to economic
alternatives. A similar situation exists with processing overcapacity: many plants are old,
relatively inefficient and can meet neither high-end market demands nor modem environmental
standards for fishmeal plants. As mentioned before, Peru i s not alone in facing these problems. A
number o f international comparisons demonstrate how problems o f overcapacity can be
addressed.81T h e following B o x indicates how Norway overcame these problems.

Box 6.1.
Example from Norway on Reducing the Capacity of the Fleet and Processing Plants
Relevant experience in methods for reducing both fleet and processing plant capacity comes from Norway,
where reductions o f 80% and 88%, were achieved, respectively, for the purse seine fleet and fishmeal
processing plants over the course o f about 35 years. T h i s was achieved through comprehensive structural
adjustment programs that included industry-financed buyouts, industry consolidation, mothballing o f
plants, comprehensive price agreements between vessels and plants (mandated by specific legislation),
government subsidies, incentives for fleet reduction through the individual quota system, and subsidized
sales o f excess capacity to Peru and elsewhere.

EnvironmentalEcosystem and Public Health Impacts

6.23 In addition to the direct impacts on anchoveta, hake and other stocks, substantial
ecosystem-wide impacts arise from capture and processing activities. These include significant
by-catch o f non-target species and impacts to other species adversely affected by the catching o f
millions o f MT o f anchoveta each year (Figures 6.2 and 6.3). Seabirds are included among the
affected species, and although their populations are s t i l l estimated to comprise millions o f
individuals, studies conducted by NGOs indicate a steady decline in the number o f seabirds
associated with the expansion o f the fishing industry. Anchoveta production i s also responsible
for environmental impacts related to water and air pollution, thus undermining the sector’s social
and economic contributions. The introduction o f available improved processing technologies
appears to have strong win-win potential, because more efficient waste recovery could lead to
recouping at least part o f the discharged fishmeal and oil. Similarly, overall emissions can be
reduced by using steam dryers to process fishmeal instead o f direct heat. T h s would augment the
amount and quality o f protein in the final product, and generate a price differential o f US$30-80
per MT above that for standard fishmeal.

81
See, for example, OECD documents:
AGFUFI(2004)4/Revl: Further Examination o f Economic Aspects Relating to the Transition to Sustainable Fisheries.
Review o f the Use of Management Systems. AGR/FI(2004)5/Part 3: Iceland Case Study by Professor R. Amason.

123
Figure 6.5. Industrial Fishing Landing and Processing
Facilities Showing Processing Quality

Weak Governance and Inadequate Oversight

6.24 The increase in fisheries production capacity over the last 15 years has come about in
spite o f the 1992 General Fisheries Law, which expressly prohibits expansion o f fleet and
processing capacity. Despite the General Fishery Law’s intent to manage Peru’s fisheries based
o n biological, economic, and social considerations and in compliance with the FA0 Code o f
Conduct for Responsible Fisheries, the institutional framework for effective governance remains
deficient. T h i s largely results from enforcement difficulties and loopholes in the l a w regarding
limits o n fleet size and vessel class (i.e., whether fishing for direct or indirect human
consumption, whether targeting underexploited or l l l y fished stocks, or whether vessels are
classified as industrial or artisanal). Some specific examples follow.

6.25 M a n y loans for vessel construction were granted contrary to provisions o f the Fisheries
Law; others were approved initially to target “underexploited stocks” (e.g., chub and horse
mackerel), only to have the license request changed to f i s h anchoveta when it became clear
shortly thereafter that a fishery for these “underexploited” species was not economically viable.

6.26 In 1998, Viking class vessels were legitimized as part o f the anchoveta fleet. Classed as
artisanal vessels, the Vilungs were exempt from regulations limiting the size o f the industrial
fleet, despite recognition by authorities that the sector suffered f r o m overcapacity. This act

124
precipitated the rapid construction and growth o f Viking class vessels in the fleet, with the
addition o f 3 80 wooden vessels since 200 1. The Viking Fleet currently captures around 1 million
MT annually, with far less variability in catch than the fleet o f steel purse seiners.

6.27 When substituting newer vessels for older ones, the 1:l replacement ratio o f vessel
fishhold capacity has been retained, although better-equipped, newer vessels have much greater
efficiency and powerg2than the older vessels they are replacing. Other “exceptions” to ordinances
intended to limit capacity include ad hoc adjustments to regulations o n fishing licenses and
permits for the operation o f processing plants.

6.28 Finally, despite a Vessel Tracking System (SISESAT) and independent inspection o f
catch at landing facilities by an external private company (SGS) along the coast, fragmented
responsibilities for Monitoring, Control, and Surveillance (MCS) and restricted access to
information have led t o allegations o f violations and fraud. For example, the percentage o f
juvenile anchoveta i s legally set at 10% o f landings, and percentages o f up to 96% o f juveniles
are reported in landings, sometimes for periods o f several weeks. These weaknesses in the M C S
system would affect the successful introduction o f more market-based fishing-rights systems, as
will be proposed later.

Institutional Arrangements and Public Participation

6.29 The huge overcapacity in the Peruvian fishing industry i s a sign o f the basic
weakness in the fisheries sector’s governance. It i s fimdamentally important to strengthen
the sector’s governance, taking account o f ecosystem considerations through an
Ecosystem Approach to Fisheries and Ocean management (EM). IMARPE (Instituto del
Mar de Peru), the biological research arm o f the Division o f Fisheries within the Ministry
o f Production, issues its recommendations o n the TAC for different stocks each year.
These recommendations are based o n IMARPE’s assessment o f the different stocks’
condition and recruitment potential, oceanographic and other factors. At times,
IMARPE’s advice i s not reflected in ministerial management decisions; this shows weak
linkages between research, policymaking, and implementation at the level o f the Ministry
(Figure 6.6).

82
P e d Pesquero, No. 9, 1992

125
Figure 6.6.
Framework for an Ecosystem Approach to Ocean Management

The illustration describes the interactive management decision cycle. All stakeholders f r o m the
fishery sector and from c i v i l society must be included in the process t o promote openness and
transparency.

6.30 The central environmental institutions, such as C O N A M (Consejo Nucionul del


Ambiente), INRENA and DIGESA have been sidelined with respect t o environmental oversight
o f the fisheries sector. C i v i l society, in the form o f NGOs and academic and research institutions,
has historically had little voice in independent reviews or demands for public accountability. A
recent positive s i g n has been the initiation o f discussions o n overcapacity, the future sustainability
o f the anchoveta fishery and the need to reduce fishing effort. The discussion has been facilitated
by bilateral assistance, the private sector, and NGOs, which have been reflecting international
market concerns regarding sustainable sources o f supply and product quality.

Contribution to Economic and Social Welfare

6.31 The sustainability o f Peru’s anchoveta fishery depends not only o n the ecological and
economic viability o f production, but also o n the extent to which benefits f r o m this public good
accrue to society. A s noted above, the vast majority o f the catch i s destined for conversion into
fish meal and fish o i l for livestock and aquaculture production in China and Europe, with only 2-
7% used for direct human consumption, mostly for export. Only 1% o f the production i s used for
domestic consumption. With meat and the higher value fish unaffordable t o Peru’s poorer classes,
small pelagics represent an important, but largely untapped, potential source o f protein for the
poor in Peru and elsewhere. Despite food security and nutrition issues in Peru and the
government’s efforts, very little progress has been made in developing a domestic market for
direct consumption o f anchoveta.

6.32 No comprehensive analysis has been made to estimate the economic losses (or foregone
benefits) caused by fleet and plant overcapacity and suboptimal fish stocks. Further analysis i s
required to estimate the environmental and social costs o f marine and coastal degradation caused

126
by the industry. Some indicative studies suggest that the sector i s probably losing several hundred
million dollars annually in net benefits:
Aguero (1987) concluded that eliminating fleet overcapacity could have increased net
benefits by over 60 million US$. T h i s was based o n a 37% fleet overcapacity compared to
the current overcapacity o f more than 100%.
The poor utilization o f investment and infrastructure was conservatively estimated in a
2002 study (PRODUCE, 2002) as causing losses o f US$50-70 million per year. A similar
order o f magnitude was estimated by Rizopatr6n (2000), according to which a fleet
reduction by only 50,000 MT hold capacity would save US$6 fishing cost per ton o f
anchoveta landed.
Ecosystems changes caused by the high catch o f anchoveta threaten incomes from
alternative livelihoods o f some US$20 million per year (Majluf et al., 2005).
The reported heavy indebtedness o f the sector enables the industry to obtain significant
tax exemptions, with the result that the sector contributes a disproportionately small
fraction o f i t s earnings to the national treasury. Annual aggregate taxes paid to the state in
recent years range between US$22 and US$60 million, or less than 1% o f total
government revenues. If taxes were levied at rates equivalent to those o n other productive
sectors, or equivalent to the sector’s contribution to GDP, public revenues could increase
up to US$lOO million per year.
License fee levels are l o w because vessels currently pay only US$0.72 per ton o f catch,
yielding total revenue o f about US$7 million. In comparison, for a smaller fishery, the
Chilean treasury receives US$20 million in revenue.
Production inefficiencies and the l o w grade o f the fishmeal (especially regarding protein
quality) lead to the loss o f benefits. Recovering these benefits would require significant
changes in catch management on board and at the landing sites to prevent spoilage, and
investments in more efficient recovery sytems for fish o i l and protein, n o w available.

6.33 The dissipation and drain o f resource rents and net benefits that the government and
Peruvian economy should otherwise realize from the anchoveta fishery have significant social
consequences. These include lost income to finance Peru’s anti-poverty and food security
agendas and marine resources management in general; lost job opportunities from diversified and
value-added industries related to anchoveta, including marine tourism associated with seabirds
and marine mammals dependent on anchoveta in the food chain; and contamination o f air, water
and food.

The Future

6.34 Two major external factors are likely to shape Peruvian fisheries in the future: (1) the
growth o f aquaculture and livestock production, particularly in China, and i t s dependency on
fishmeal and fish oil; and (2) climate change or, more specifically, the frequency and intensity o f
ENS0 events. The degree to which these factors will affect the sector’s economic, environmental,
and social performance will depend largely on creating a more economically viable and
biologically robust sector through reforms in fisheries management and governance.

6.35 Future prospects for fishmeal and, in particular, for fish o i l look promising, The price o f
fishmeal, and particularly o f fish oil, i s expected to increase over the next five years, based on
anticipated demand in China and worldwide from expanding aquaculture operations. Consumer

127
concern about the sustainability and safety o f feedstocks i s also an issue in Europe, where
certification and labeling are in increasing demand by consumers. In China, efforts to replace
imported fishmeal with soy and cheaper sources o f protein in livestock feeds are advancing.
However, fish o i l remains an essential source o f Omega 3 fatty acids in the diet o f carnivorous
farmed fish. Until alternative supplies o f these fatty acids are sourced through advances in
biotechnology and genetic engineering, demand for f i s h o i l supplied largely by Peru will
continue. T h i s will put a premium o n improved processing and techniques for fish o i l extraction,
and could be an incentive for recovery o f fish oils from fish waste. Such materials are currently
discharged along with pump water and are responsible for pollution near the processing plants.

6.36 With climate-change models predicting more frequent El Niiio events, climate-driven
change in anchoveta biomass i s expected to become more volatile. Managing this volatility t o
maximize resilience and recovery o f anchoveta stocks will require improved oceanographic
information o n the estimated onset and severity o f an E N S 0 event, accurate monitoring o f the
condition o f standing stocks and recruitment potential, and improved capacity t o monitor stock
behavior during an El Niiio event to determine factors influencing recovery. Better assessment o f
the interactive effects o f El NiEo and fishing pressure o n stock recovery potential will also be
required to manage stocks for optimal yields. These studies should be extended t o other species in
the food webs o f economically important f i s h stocks within the Humboldt Current Large Marine
Ecosystem. Because the climate-induced changes in the anchoveta biomass and resulting
economic impacts are likely be recurrent, consideration may be given t o establishing economic
stabilization mechanisms to provide insurance or compensation to vessel operators and crews that
may have to stop fishing in El Niiio years.

6.37 Business as usual o n the management and governance side i s not an option. Leaving the
current system o f weak governance and major regulatory gaps in place will likely create
additional increases in vessel and processing capacity. These increases will further increase
inefficiency in the utilization o f fishing and processing investments, put further stress on the
ecosystem, and result in continued poor economic returns t o Peru f r o m the sector. Strengthening
the governance o f the sector, as recommended in the policy recommendations described below,
could at least recoup some o f the losses and capture some o f the benefits currently being lost.
These losses are estimated to be several hundred millions (in U S dollars) per year.

Policy Recommendations

6.38 Policy recommendations to improve sector governance center on three major objectives:

1. Substantially increase the net benefits from the fisheries.

2. Ensure an equitable distribution o f these benefits (social and economic) from the
fisheries.

3 . Sustainably exploit fisheries resources through an ecosystem approach to management


that internalizes environmental and social costs in determining optimal economic yields
for the fisheries.

6.39 The following recommendations support these objectives and identify the policy actions
that can be undertaken in the short term and the medium t o longer term, with potential high
returns o n investment.

128
I. Substantially increase the net benefit from thefisheries and ensure equitable distribution of
benefits

a. Limit access and allocate fishing rights. Institute a general framework for the allocation
o f rights, paying particular attention to (i)
equity in allocation, (ii)
distribution o f social
benefits, and (iii)human welfare issues.

b. Reduce the capacity o f the fleet and fish plants to a level that maximizes the net
economic returns during normal years through a structural adjustment program. Develop
a timeline for decision making and for implementing effort reduction in the whole fishing
industry, including a period for public vetting and for securing financing. These options
should be considered:
Institute a vessel buyback and decommissioning scheme that provides adequate
safeguards t o the moral hazards involved.
Institute a general system o f quotas to be gradually developed for the different
fisheries. F o r hake fishery, a system o f individually transferable quotas (ITQ) might
be considered and, i f proven successful, expanded t o other demersal and pelagic
fisheries.
Enforce a freeze on the Viking Fleet’s capacity until a comprehensive plan to reduce
fishing i s under implementation.
Provide a financial incentive to reduce excess vessel capacity either through
increased licensing fees that reflect the true value o f the resource being harvested or
through other methods.
Eliminate the excess capacity o f processing plants through closure by using market
mechanisms, ensuring, as a matter o f public policy, that all subsidies are eliminated,
and that all costs for mitigating pollution are charged to the industry. T h i s can be
expected to eliminate the least efficient factories.
Increase revenue capture from industry t o support the development o f alternative
economic opportunities and the anti-poverty agenda.
Restructure the industry’s debt through a dialogue with industry stakeholders and key
donors.

c. Explore market and r e m l a t o w mechanisms t o ‘automatically’ adjust fleet activity and


plant capacity during E l NiEo events to (a) retain a high level o f net economic benefit and
(b) facilitate a rapid recovery o f the anchoveta and other stocks following such events.
Consider establishing a stabilization fund to address the economic impacts o f the
regulatory measures that are required by the climate-driven volatility o f the stocks and
landings.

II.Ensure Equitable Distribution of Benefits and Improved Management of the Sector

a. Create a system o f co-management with participation by industry, c i v i l society, and other


legitimate stakeholders in decisions affecting the management o f the fisheries sector.

b. Ensure open public access to kev information (biological, economic, fiscal, and social)
about the fishery sector.

129
c. Strengthen the monitoring and enforcement o f fishery regulations, including the vessel
monitoring, surveillance, and control (MCS) system.

d. Ensure transparent independence from industxv. Ensure that institutional arrangements


for drafting, adopting, monitoring, and enforcing environmental standards and safeguards
maintain a transparent independence from industry.

III.Adopt an Ecosystem Approach to the Management of Fisheries

a. Strengthen the fisheries- and oceans-research capacity o f IMARPE for science-based


management o f marine resources.

b. Pursue a precautionary approach in fisheries management.

C. Establish, where necessary, a revised system o f fishery regulations to ensure the rational
and sustainable harvest o f fish stocks. These regulations should address factors such as
minimum fish size, seasonal closures, and gear restrictions.
d. Internalize the environmental costs of the fisheries sector. Reduce andor internalize the
negative externalities o f the fishing industry on the coastal population, the coastal
environment, and the ecosystem.

e. Establish a system o f marine reserves. In compliance with L a w No28793 (Law for the
Protection, Conservation, and Re-population o f the Country’s Guano Islands, Rocks, and
Points) promulgated in July, 2006, incorporate the Guano Reserve System (Sistema de
Islas, Islotes y Puntas Guaneras) into the National System o f Natural Protected Areas
(SINANPE) and launch a program for their conservation and re-population. T h i s will
protect critical breeding and nursery habitats for threatened marine species and protect
areas o f high productivity for artisanal fisheries and aquaculture.

130
Summary o f Policy Recommendations:Actions for the Fisheries Sector

Recommended Medium- to Long-


Objective Recommended Short-Term Actions
Term Actions
Limit access and allocate fishing 0 Reduce the capacity o f the fleet and
Substantially
rights. Institute a general framework fish plants to a level that maximizes
increase net
for the allocation o f rights, paying net economic returns during normal
benefits from
particular attention to (i) equity in years through a structural adjustment
fisheries, and
the allocation, (ii) distribution o f program. (Cost: high-but can be
ensure equitable
social benefits, and (iiihuman
) moderate through the use o f
distribution o f
welfare issues. (Cost: low) potential mechanisms for financing
these benefits
Develop a timeline for decision by industry)
(social and
economic) from the making and for the implementation
fisheries. o f effort reduction in the whole
fishing industry, including a period
for public vetting and securing
financing. (Cost: low)
0 Increase revenue capture from
industry. (Cost: low)
0 Restructure the industry’s debt by
opening a dialogue with industry
stakeholders and key donors. (Cost:
hh)
Explore market and regulatory
mechanisms to ‘automatically’ adjust
fleet activity and plant capacity
during El Niiio events to (a) retain a
h g h level o f net economic benefit
and (b) facilitate rapid recovery o f
the anchoveta and other stocks
following such events. (Cost:
moderate to high)
Consider establishing an industry
driven stabilizing fund to address the
volatility o f the stocks and landings.
(Cost: moderate)
Improve sector 0 Ensure open public access to key Create a system o f co-management
governance. information (biological, economic, with participation by industry, civil
fiscal, and social) about the fishery society, and other legitimate
sector. (Cost: low) stakeholders in decisions affecting
Strengthen the monitoring and management o f the fisheries sector.
enforcement o f fishery regulations. (Cost: low)
Strengthen the vessel monitoring,
surveillance, and control (MCS)
system. (Cost: moderate to high)
Freeze any expansion o f the Viking
Fleet and implement a vessel registry
system to monitor the fleet. (Cost:
low)
Establish a multi-stakeholder
working group to examine the trade-
offs and viability o f instituting a
general framework for allocating
fishing rights. Particular attention

131
should be given to (i) biological
carrying capacity, (ii)social equity in
the allocation process, and (iii)
financing issues. (Cost: low)
0 Transfer to CONAM, DIGESA, and

INRENA decisions related to (a) the


drafting and adoption o f
environmental standards for industry
emissions, and to (b) monitoring and
enforcement within an integrated
framework o f these standards and o f
environmental safeguards. (Cost:
moderate)
Strengthen the fisheries- and oceans- 0 Internalize environmental costs of
Sustainably exploit
research capacity o f IMARPE for the fisheries sector. Reduce andor
fisheries resources
science-based management o f marine eliminate the negative externalities
through adoption
resources. (Cost: high) o f the fishing industry o n the
o f an ecosystem
0 Establish a revised system o f fishery coastal population, the coastal
approach to
regulations to ensure the rational and environment, and the ecosystem.
managing the
sustainable harvest o f fish stocks. (Cost: moderate)
fisheries sector.
These regulations should address 0 Establish a system o f Marine
factors such as minimum fish size, Protected Areas to protect critical
seasonal closures, and gear breeding and nursery habitats for
restrictions. (Cost: moderate) threatened marine species and to
Finalize the incorporation o f the protect areas o f high productivity
Guano Reserve System (Sistema de for artisanal fisheries and
Islas, Islotes y Puntas Guaneras) into aquaculture. (Cost: moderate)
the National System o f Natural
Protected Areas (SINANPE). (Cost:
low)

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CHAPTER 7

CONSERVATION OF NATURAL ASSETS:


SOILS, FORESTS, AND BIODIVERSITY

Much of Peru's economy depends on the effective utilization of its natural resource base. Peru
has the world's eighth largest forest cove and a unique array of diverse biological resources, but
the country has scarce soils to sustain its agriculture. The sustainable use of these resources is
under threat from many sources, both natural and human-induced. The latter include migration
to the Oriente, illegal logging, road and infrastructure development, threats to many endangered
species, increasing soil erosion, and soil salinity problems on the Coast. Improving the
management of Peru's diverse natural resource base w i l l require an improved policy and
regulatory framework, a higher level of resources for its management and protection, and a
renewed national commitment to sustainable natural resource management."

Introduction

7.1 Peru possesses a vast natural resource base that serves as the foundation for much o f i t s
economy. Agriculture, fisheries, petroleum, natural gas, and forestry are among the most
important economic sectors. Increasingly, though, the productive use o f these and other natural
resources i s under threat from many sources, both natural and human-induced. Estimates o f total
annual environmental damage in Peru, ranging from 6.0 to 10.4 billion soles, include an
estimated 820 million to 1.51 billion soles due to soil degradation (erosion and salinity) and
deforestation (Chapter 3). This chapter addresses the conservation o f natural assets in Peru,
specifically soils, forests, and biodiversity. This chapter treats these three areas in turn, in each
case examining the current situation, causes contributing to resource degradation, the
institutional and policy framework, and recommendations for institutional and policy changes to
reduce environmental degradation and promote future sustainable use o f these resources.

Soil Degradation

Current Situation-Soil Erosion a n d Soil Salinity

7.2 Soil erosion and soil salinity have long presented formidable constraints on improving the
productivity o f Peruvian agriculture. A fact that cannot be stressed enough i s that cultivable land i s scarce
in Peru. The country's 4.2 million hectares o f land in annual and perennial crops represent only about
3.3% o f the country's total area and amount to only about 0.16 hectare per capita, one o f lowest among
developing nations. T h i s makes soil erosion, which affects all three regions o f the country (Coast, Sierra,
and Oriente), all the more serious as a problem. O f the various types o f soil erosive processes in Peru,
sheet erosion i s the most fkequent, accounting for an estimated 49.19 million hectares (Table 7.1). Sheet
erosion i s not highly visible, occurring as rain falls on steep slopes and slowly dragging soil particles
downhill. Sheet erosion does not producing noticeable r i l l s or gullies, but nonetheless causes loss o f soil
fertility. The second important erosive process i s concentrated surface runoff that produces furrows (rills)

83
T h i s chapter was prepared by David Lee. T h i s chapter draws on background documents prepared by Jorge Elgegren (2005,
2006) and Juan Guerrero Barrantes (2006).

133
o f various depths, some eventually becoming deep ditches (>lm) or gullies. T h i s accounts for another
24,100 million hectares. Mass soil movement, sometimes resulting in mudflows and landslides, accounts
for another 18.8 million hectares o f eroded soils.

7.3 Based on the most recently available statistics-which are from the 1970s and are severely out-
of-date-approximately 18.9 million hectares in Peru are affected by moderate-to-severe erosion
(including nonarable land). On another 109.9 million hectares, erosion i s light to moderate (Table 7.2).
Moderate-to-severe erosion i s most serious in the mountainous topography o f the Sierra, where it i s
estimated to characterize 50% or more o f the region's soils, while another 40% o f the region's soils are
affected by light-to-moderate erosion. Light soil erosion i s more prevalent in the soils o f the Coast and
Oriente.
____ ~

Table 7.1. Dominant Types o f Soil Erosion in Peru by Region (Million hectares)
Type of Erosion Coast Sierra Oriente Total
Mudflow 0.39 1.52 39.98 41.89
Sheet erosion 1.30 4.92 1.08 7.30
Non-concentrated surface runoff 1.69 4.92 41.06 49.19

Rill erosion 0.75 15.75 16.50


Rill and gully erosion 7.60 7.60
Concentrated surface runoff 0.75 23.35 24.10

Mass movement (mudflow, seasonal soil 18.80 18.80


creep, intensive sheet erosion, landslides)

Mass movement and surface runoff due to


torrential events 3.50 3.50

Fluvial deposition 17.30 17.30

TOTAL WATER EROSION 5.94 I 29.79 I 77.16 I 112.89

TOTAL WIND EROSION 5.60 5.60

Glacial processes and wind erosion 3.80 3.80

Landslides and wind erosion 5.70 3.80 9.50

TOTAL EROSION 17.24 37.39 77.16 131.79

Table 7.2. Intensity o f Soil Erosion in Peru (1,000 Hectares)

Source: ONERN (1985)

134
7.4 Several studies have estimated the aggregate soil loss arising from soil erosion in Peru. Early on,
Gamarra (1945) estimated annual sedimentation in Peru’s Coastal rivers at 63.2 million m3,representing
a loss o f 316,000 hectares o f arable land. Reyes and Portocarrero (cited in Alfaro Moreno, 1984)
estimated annual soil loss equivalent to 200,000-300,000 hectares annually. L o w (1966) estimated that
1,500 metric tons per km* annually were lost. The National Soil and Water Conservation Program (1986)
estimated soil loss in 44 river basins on the western slopes o f Andes equivalent to 3 18,000 hectaredyear.
Therefore, these estimates, however old, are roughly consistent.

7.5 Soil salinity i s not only a serious problem in Peru, but also a global problem that affects an
estimated 1 billion hectares o f the world’s soils, representing 10% o f global arable lands (Szabolcs,
1989). “Soil ~ a l i n i t y ” ’indicates
~ the total amount o f soluble salt in the soil. Salts, especially nitrates and
potassium, are necessary components o f soil. However, when they are present at high levels, they will
adversely affect plant growth by inhibiting plants’ water uptake from the soil, aggravating water stress
and causing nutrient imbalances, reduced water infiltration, and the accumulation o f toxic elements. High
soil salinity can lead to plant stunting, leaf burn and defoliation, resulting in yield decreases and reduced
forage quality. Inprinciple, soil salinity i s not difficult to manage. Saline and sodic (sodium-containing)
soils exist in at least 100 countries, where an estimated 10 million hectares o f imgated land are
abandoned annually because o f salinization, sodification, and waterlogging (Szabolcs, 1989).

7.6 The main requisite for managing soil salinity i s adequate drainage, either natural or
manufactured. The degree o f soil salinity must first be determined by measuring the electrical
conductivity o f a sample solution extracted from a water-saturated soil paste. Soil salinity i s typically
measured, based on the extracted solution’s electrical conductivity, in units o f decisiemens per meter
(dS/m) or millimhos per centimeter (mmhos/cm). “Evident salinity” i s that in excess o f 4 mmhos/cm; this
i s further divided into “light” salinity (4-8 mmhos/cm)-the level at which most plants are adversely
affected-and “heavy” salinity (>8 mmhos/cm) (Table 7.3). A value below the level o f “evident salinity”
has been defined as “incipient salinity” for Peru (also Table 7.3).

7.7 Based on these criteria, more than 306,000 hectares--40% o f cultivated land in Peru’s Coastal
Valleys-were affected by soil salinity in the 1970s. About 25% (roughly 190,000 hectares) was
characterized by light to extreme salinity (above 4 mmhos/cm), enough to negatively affect crop
productivity. The extensive nature o f the salinity problem i s demonstrated by the fact that, in 18 o f these
Coastal valleys, over 60 percent o f cultivated land was characterized by some level o f soil salinity, and in
another eight valleys, this figure was between 4 0 4 0 % o f cultivated land. The severity o f the problem i s
confirmed by the results from evaluations o f soil salinity in 16 selected Coastal areas (also in the 1970s),
showing that salinity affected fully 69% o f the soils evaluated (Table 7.4).

7.8 Together, soil erosion and soil salinity are estimated in Chapter 3 to result in W.544 to S/.918
million soles worth o f annual losses resulting from reduced crop yields and abandoned lands. It i s likely
that these figures are conservative and significantly underestimate the severity o f the actual current
economic losses resulting from soil degradation. Soil erosion and salinity data, though s t i l l reported by
INRENA, are based on data assembled by i t s predecessor organization, the National Office o f Evaluation
o f Natural Resources (ONERN), in the 1970s and 1980s. At this point, this information i s o f questionable
utility, due to i t s age (20-30 years or more), the fact that soil salinity problems have likely worsened in
the intervening years;, and the subjective criteria that were (and are) often used in reporting salinity
problems. Lack o f monitoring makes it impossible to c o n f m the magnitude o f the current problem, but
it i s widely reported to have become worse in key areas o f the Coast such as the Chira-Piura region.

84
The discussion o f soil salinity draws f r o m Kotuby-Amacher et al. (1 997).

135
Source: Ministry o f Agriculture Portal (2005), based on data from ONERN (1973)

136
Causes of Soil Degradation

7.9 There are many causes o f erosion in Peru. Peru’s Sierra region, accounting for nearly 30% o f the
total national area o f 1.29 million Ian’, i s a mountainous area o f great topographic variation with
mountain valleys ranging f i o m 1,500-3,000+ mas1 and widely characterized by steep slopes (FAO,
2002). This makes much o f the country’s soils highly vulnerable to erosion. Reinforcing this problem are
seasonal rains in many areas, exacerbated by periodic occurrences o f El Ni60, most recently in 1997-
1998, which have caused significant soil erosion and downstream sedimentation, as well as severe
impacts on the human population. The lack o f protective measures-both natural and manufactured-n
stream banks makes the impacts o f flooding even more severe. Wind erosion i s a major source o f soil
erosion on the Coast.

7.10 Adding to these natural causes o f erosion are numerous human-induced influences. Overgrazing,
particularly in the Sierra, which includes 90% o f the nation’s cattle, i s a common problem. Widespread
deforestation (see next section), currently in the Oriente and earlier in the Sierra, has further exacerbated
this problem. Poor crop cultivation practices also contribute to erosion. Data f i o m the Andean region
(Peru and Ecuador) shows a close association o f cultivation practices and soil erosion (Table 7.5). Both
choice o f crop and the use or non-use o f soil conservation practices-contour plowing, crop rotations,
and fallow management, for example-have had significant impacts on the degree o f soil erosion. The
magnitude o f the erosion problem i s illustrated by the Poechos Reservoir in northern Peru, which had an
initial capacity o f 1 billion m3 when constructed in 1977. Now, sedimentation, due in part to poor soil
management practices, has reduced this reservoir’s effective capacity to 400,000 m3.

I Table 7.4. Area Affected by Soil Salinity at Sites Evaluatedby ONERN (1973) I
Number Area Area
YO
of Sites Evaluated
Affected Affected
Area Evaluated Evaluated (ha) (ha)
Chicaza 9 50,620 1,000 2
Moche, Viru and Chao 19 99,400 17,900 18
Santa, Lacramarca, Nepeiia, Casma, 31 104,700 34,625 33

Atico, Caraveli, Pescadores and 61 18,655 I 18,655 I 100


Ocoiia
Majes and Camana 17 126,990 107,450 85
Quilca and Tambo 15 335,700 297,100 89
Osmore, Locumba, Sama and 26 258,000 189,000 78
Caplina
TOTAL 200 1,490,660 1,026,980 69

137
7.10 The problem o f soil salinity in Peru's Coastal valleys also has diverse causes. Heavily eroded
desert soils, l o w in moisture and organic material and high in mineral salts due to their marine origins,
have l e f t Peru's Coastal valleys with soils that have a high soluble salts content. Salinity i s further
affected by a variety o f environmental and management factors, including climate and irrigation
practices. As soil dries in hot, dry conditions, such as those on Peru's Coast, salts become concentrated,
increasing salt stress. Consequently, salinity problems are most severe in these areas, but such problems
are often accompanied by increasing irrigation frequency.

Table 7.5. Estimated Rates o f Soil Erosion for P e r u and Ecuador


Authors Conditions Experiment Treatment Erosion
(rainfall, slope) (mg/ha/yr)
Felipe- 500-750 mm Runoff Maize-potato-oats, mulching 3.7
Morales, Slope: 25% plots, Maize-potato-oats, contour plowing; 6.9
1993 40 m2 Maize-potato-oats, up-down plowing; 14.2
Maize, up-down plowing 20.0
Low, 1966 Simulation, Peru 0-70
USLE Southern Andes 10-30
Pastor, 1,050 mm Runoff Natural vegetation 0.4-1.1
1992 Slope: 3 0 4 0 % plots, Sweet potato, contour plowing 0.6-1.4
40 m2 Sweet potato, up-down plowing 1.8-4.0
Clean fallow (bare land) 3.1-14.9
Torre, 2,000 mm Maize-pea rotation 445
1985 Slope: 20% Pea-cassava rotation 12-70
Alegre & 2,200 mm Runoff Contour hedgerow cropping 6
Rao, Slope: 15-20% plots, Annual crops (rice, cowpeas) 79
1996 150 m2 Bare soil 141
Byers, Rainfall Maize 82
1990 simulations
Harden, 800-1,400 mm Rainfall Thin dusty soils 20
1988 Slope: >SO% simulations High-altitude, rich organic-matter 40
soils 80
Intermediate altitude, dark Andean
soils
Source: Authors listed above, cited in Posthumus (2005)

7.12 The over-application o f water in excess o f plant demand often occurs during hot, dry periods to
minimize salinity stress. T h i s leads to a highly inefficient system and high groundwater levels in the
absence o f an adequate drainage system. Due to h g h evaporation, irrigation water i s o f poor quality.
Overplanting o f rice uses a great deal o f water, up to 30,000 m3/hectare or more, worsening preexisting
salinity and drainage problems. In major irrigation projects such as Chira-Piura, irrigation and drainage
systems are poorly maintained; in many cases, they have fallen into total disrepair. h g a t i o n
technologies that are more efficient than gravity irrigation, such as sprinkler and drip irrigation, are
rarely used. Soil and water contamination further exacerbates the problem. Finally, l o w water costs,
typically well below the cost o f water delivery, mean that little economic incentive exists for farmers to
economize on water use.

138
Soil Conservation Measures

7.13 Soil conservation measures are the primary means by which farmers can arrest soil erosion.
Ideally, avoiding the deforesting and cultivation o f land inappropriate for agriculture would render these
measures unnecessary. However, for land that i s already highly eroded, such as much o f the Peruvian
Sierra, explicit measures are typically required to prevent further soil loss. The use o f these measures
entails benefits-lower erosion, greater soil moisture retention, higher crop productivity-as well as
costs, principally in terms o f labor inputs. Some soil conservation measures are ancient; estimates o f the
extent o f remaining Incan and pre-Incan stepped terraces range from 200,000 hectares to ten times that
amount (Inbar and Llerena, 2000), most o f which are abandoned or in disrepair.

7.14 The crop productivity effects o f soil conservation measures are well documented, although most
applied research regarding Peru i s somewhat dated. Three studies, all from the late 1980s, compare crop
yields from unterraced land to those with two types o f apcultural terraces, among the most commonly
promoted soil conservation measures in Peru (Table 7.6). The results from the L a Encaiiada study, using
”slow formation” terraces in which the soil i s slowly built up over time, show a 17.6% increase in yields

Table 7.6. Crop Productivity Effects o f Soil Conservation Measures

Crop Yield without Soil Yield with Terraces* Estimated Increase


Conservation Measures in Yields
@/ha) (kg/ha) (YO)
Potato 3,800 4,300 13.1
Maize 794 95 1 19.7
Barley 726 798 9.8
Andean tubers 6.33 1 6.709 5.9
Drv beans 640 755 17.9
Peas 596 830 39.2

Potato 4,581 11,091 142.1


Maize 482 490 1.7
Barley 740 993 34.2
Oats (for forage) 5,625 7,675 36.4
Wheat 723 1,113 53.9
Quinoa 8,500 11,550 35.8
Oca** 5,433 9,300 71.2
Olluco** 2,700 5,000 85.2
Alfalfa 567 6,345 1019
Apples 1,500 1,666 11.1

Potatoes (fertilized) 12,206 17,206 41.0


Maize (fertilized) 1,807 2,982 65.0
Barley (fertilized) 1,333 1,910 43.3
Barley, forage (fertilized) 15,865 23,000 45.0

139
(simple average across six crops). The other two studies, using bench-type “water absorption” terraces,
which require greater construction costs, demonstrate a 52.4% average yield increase85in the Cajamarca
study and a 48.6% yield increase in the Colca Valley study. A recent study (FCPS, 2003) was conducted
in three Sierra sub-watersheds in which soil conservation measures were introduced along with small-
scale irrigation. T h i s study found yield increases ranging from 33% (beans, onions, wheat) to 200%
(potatoes) and even 700% (alfalfa). Most crops achieved 50-1 00% yield gains.

7.15 T o achieve these gains requires labor and material inputs ranging from modest to substantial.
The primary input i s labor, either paid or unpaid. Estimated costss6for the four most widely promoted
soil conservation measures in Peru are available from previous studies. However, these studies range
over a wide period, limiting the comparability o f economic and financial estimates (Table 7.7). The four
measures include slow formation and water absorption terraces (both described above), the
reconstruction o f traditional Andean terraces (Andenes), and water infiltration ditches. For all four
measures, cost estimates vary widely depending o n factors such as the study’s location and date, soil
type, soil moisture level, and cost o f local materials.

Table 7.7. Construction Costs for Selected Soil Conservation Practices


Soil Conservation Measure Labor Investment Estimated Cost ($/ha)
Reconstruction o f traditional 1,013 daysha $1,993-$3,985 (1996)’
Andean terraces (Andenes)
600 daysha $1,764-2,472 (labor only, 2005)2
Water absorption terraces 1,250 daysha $3,675-$5,150 (2005)3
(terrazas de absorcidn)
1,000 dayslha $2,940-$4,120 (labor only, 2005p

$3,323 (1994)4
Slow formation terraces 500 daysha $1,470-$2,060 (labor only, 2005)’
(terrazas deformacidn Zenta)
$ 807 (1994)4
$250-$ 1 , 5 6 6 h (2005)5
infiltracidn) on soil type and soil moisture

2 10 daysha $617-$865 (labor only, 2005)2

$ 1,649-$2,31 l h a (2005)6
’ Olarte and Trivelli (1999). Based on calculations made in 1989 and 1996. Excludes additional irrigation
costs o f $1,15Oha.
’World Food Programme (2000), Promocion de Desarrollo Sustentable de Microcuencas Altoandinas,
WFP/EB.2/200016-A/21Add.1, Lima, Peru, May. Labor costs updated to 2005.
M. Romero (2005), Instituto de Desarrollo y Medio Ambiente, Lima.
Fondo de Contravalor PERU-SUIZA (1994).
SBnchez Cevallos (1986), with labor costs updated to 2005.
Fondo de Contravalor, PERU-SUIZA (1994), with labor costs updated to 2005.

For Andean terrace reconstruction, Treacy (1989) reports an even wider range o f labor costs, from 350 to
3,750 days per hectare. At 2005 labor cost level^,^' these amounts o f time would entail labor costs
ranging from $1,029 to US$15,442 per hectare. Given these exceedingly wide ranges o f estimated costs

s5 The yield increase for alfalfa appears to be an outlier and i s excluded &om this calculation.
86 Where possible, costs were updated to 2005. In two studies, the underlying data were not sufficiently disaggregated to enable
this updating; thus, costs are reported in 1994 and 1996 US dollars.
*’ 2005 labor costs are estimated at 1C-14 soles per 6-hour workday (jornd), depending on location.

140
and yield levels stemming from soil conservation measures, as well as the outdated nature o f most cost
estimates, it i s difficult to conclude whether investing in these measures represents an economic use o f
resources for most farm households at present.

Institutional and Policy Framework

7.15 The National Institute o f Natural Resources (Instituto Nacional de Recursos Naturales -
INRENA) i s the authority in charge o f promoting the sustainable management o f Peru's soil, water, and
forestry resources. INRENA was created in 1992 as a successor institution to the National Office o f
Natural Resource Evaluation (Oficina National de Evaluacidn de Recursos Naturales - ONERN), which
had been in existence since the 1960s. Currently, INRENA's Water Resources Superintendency
(Intendencia de Recursos Hidricos) i s the office directly responsible for administering the laws and
regulations governing soil and water management. T h i s includes oversight o f 68 Irrigation Districts, o f
which 63 are implemented jointly with local watershed management authorities (Administradores
Ticnicos de Distritos de Riego - ATDR). The ATDRs are directly in charge o f local water and irrigation
management in the Coastal valleys. The Autonomous Watershed Authorities (Autoridades Autdnomas de
la Cuencas Hidrogrhjicas - PLACH), created between 1992 and 1994, are the ultimate decision-making
authorities regarding the use o f irrigation water and soil management in the irrigated coastal zones,
working in concert with INRENA representatives and water-users associations.

7.16 INRENA and other agencies working in irrigation management are greatly hampered by the 1969
Water L a w (No. 17752), which states that water i s state property and that there are n o "private property
nor acquired rights" to water. The priority order for water use i s for human, animal, agricultural, energy,
industrial and mining, and other purposes. The legal framework for water use was revised by subsequent
regulations in 1989 (D.S. No. 037-89-AG) and 1990 (D.S. No. 003-90-AG). However, there i s s t i l l a
widespread view among users that water rights are inalienable and that water use, except in irrigation
projects (where water charges are typically well below cost), should be free. This has led to, among other
things, the highly inefficient use o f water on the Coast and has stimulated the widespread cultivation o f
crops like rice that, without below-cost charges for water use, would not be economically viable. More
generally, the multiple demands on scarce water resources, especially on the Coast, as well as the lack o f
price-based or other rationing mechanisms, have led to inefficiencies and inequities in water use that
could be addressed by more integrated and economically oriented allocation mechanisms. As mentioned
in Chapter 2, a strategy to for water resources management was developed in 2004 and a bill to modernize
water resources management i s awaiting Congressional review. The enactment o f the bill would be a
capital step to address the distortions generated by the current law (Bemales, 2006).

7.17 The main initiative to address soil degradation issues i s the National Program o f Watershed
Management and Soil Conservation (Programa Nacional de Manejo de Cuencas Hidrogrhficas y
Consewacibn de Suelos - PRONAMACHCS). It dates only from 2002, although previous programs with
similar names and related responsibilities extend back to 1981. Over time, the focus o f this program has
changed from a technical emphasis on soil conservation to a broader focus on sustainable natural resource
management. In the 1990s, PRONAMACHCS became highly politicized and lost much o f i t s technical
focus. I t s current strategy focuses on enhancing livelihoods and strengthening production-marketing
chains in a target population that includes 5,000 communities in 850 watersheds, containing an estimated
170,000 families living in poverty and extreme poverty. Specific program activities include small-scale
irrigation infrastructure, technology transfer, reforestation, rural community organization, and agtlcultural
marketing. Although the institution has 125 regional offices serving 18 Departments, continuing
budgetary cutbacks have reduced the professional staff in each office from five to as few as one or two
(each office has a target population averaging 40 communities and 1,300-1,400 families). Much activity
focuses specifically on eight selected "model" sub-watershed areas.

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7.18 Financing for PRONAMACHCS's activities has been heavily dependent on external donors. The
Japan Bank for International Cooperation (JBIC) has financed over $155 million worth o f support over
the span o f many years. The World Bank has supported a project on Intensive Management o f H i g h
Altitude Watersheds (MIMA) in three Sierra sub-watersheds (in Cajamarca, Hunin, and Cuzco
Departments). A $51 million Bank loan complemented by $14.3 in GoP support and $27.9 million o f in-
kind community labor supported the Natural Resource Management for Poverty Alleviation in the Sierra
Project in 1997-2002. PRONAMACHCS's total budget has declined from about US$93 million in 2000,
to $84 million in 2001, and $42 million o n 2004. T h e current (2005) budget totals roughly $38.34
million, which i s distributed across five major categories (Table 7.8). The project's past focus on soil
conservation now accounts for only a small proportion o f the total portfolio, while production, irrigation
infrastructure, and marketing assistance to agricultural producers and reforestation have assumed much
larger shares. Among specific soil conservation measures, expenditure allocations for 2005 were as
follows: 9.2% for rehabilitating Andenes (traditional Andean terraces), 77.7 for constructing terraces,
11.8% for infiltration ditches, and 1.3% for controlling gully erosion. Nearly 80% o f the soil conservation
budget i s spent on general coordination o f watershed management activities, training and other costs (A.
Toscano, personal communication, 2005).

* At 3.4 soles per U S dollar, t h i s equals an annual program budget o f approximately US$38.34 million in 2005.
Source: PRONAMACHCS (2005), Cumulative Budget Summary

7.19 As was the case for erosion, GoP attention to the salinity problems o f Coastal valleys began in
the 1960s and 1970s. The MAG addressed this problem by creating the Land Recuperation Center
(Centro de Recuperacidn de Tierras - CENDRET, 1967-1974) and later the Subdirectorate for Land
Rehabilitation (SUDRET, 1970-1974). The salinity data reported above stem from these early efforts.
T h i s was followed by the National Plan for the Rehabilitation o f Coastal Lands (Plan Nucional de
Rehabilitation de Tierras Costeras - REHATIC, 1977-1990) and by the National Program for Land
Drainage and Recuperation (PRONADRET, 1991-1 995). This institutional legacy disappeared during the
1990s under the Fujimori administration (1990-2000), when the General Directorate for Water and Soils
was transferred to INRENA. INRENA's current Water Resources Office has l i t t l e technical expertise and
i t s efforts to address soil salinity and drainage problems are greatly reduced compared to earlier years.

7.20 Another agency, the National Institute for Development (Instituto Nacional de Desarrollo -
NADE), despite i t s broad title, was created in the 1990s. I t s specific focus i s managing large-scale
irrigation projects in ten Coastal watersheds that serve multiple uses: water storage for domestic and
industrial use, energy generation, and irrigation. Together, nine o f these projects total more than 570,544
hectares o f improved, new, and rehabilitated Coastal lands (plus 3.1 1 million hectares "involved" in the
Chavimochic Project in the Chao-Viru-Moche-Chicama region). Principal projects include the
binational (with Ecuador) Puyango-Tumbes Project (126,000 hectares in both countries), the Chira-Piura
Project (83,356 hectares in three areas), and the Tinajones Project, covering 200,000 hectares. Total
investment in these projects through 2000 was US$3.367 billion, with total projected costs o f US$11.283
billion.

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7.2 1 INRENA's Office o f Trans-sectoral Environmental Management, Evaluation, and Information o f
Natural Resources (Oficina de Gestibn Ambiental Transectorial, Evaluacibn e Informacidn de 10s
Recursos Naturales - OGATEIRN) i s responsible for coordinating the national response to problems o f
desertification, which i s closely related to soil salinity problems on the Coast. In 1994, Peru's Congress
approved the UN Convention to Combat Desertification. In July 2001, Peru's National Action Plan to
Combat Desertification (PAN-PERU) was authorized. Just recently, in June 2005, the National
Committee to Combat Desertification was authorized. Peru's national effort i s very modest, comprising
only two staff members. T h i s office engages in a variety o f activities primarily involving coordination
with researchers, NGOs and university collaborators, entailing efforts to evaluate soil salinity problems in
selected Coastal valleys (including Chancay, Lambayeque, Chao, Tambo and Sama); the early stages o f a
monitoring and evaluation effort; and the elaboration o f a database on salinity problems on the Coast.

7.22 Also within INRENA, the Special Land Titling and Rural Cadaster Project (Proyecto Especial
Titulacibn de Tierras y Catastro Rural - P E P ) has, since 1992, had responsibility for land titling and
cadastral registry o f expropriated and state-owned land, as well as for the promotion o f private sector and
cooperative investment in the rural sector. Beginning in 1996, with support from the Inter-American
Development Bank and the collaboration o f the National Superintendency o f Public Registry (SUNARP),
the Land Titling and Registry Project (PTRT) has devoted significant resources to cadastral surveys and
land titling o f farms and rural landholdings in Peru. By the end o f the project's first phase in 2001, it had
titled more than 900,000 farms (IADB, 2001). Land titling i s widely recognized as a valuable mechanism
to encourage long-term investment in land improvements and farm productivity.

7.23 A number o f other governmental and non-government-based efforts attempt to improve land
management. The National Network for Watershed Management (REDNAMAC) i s composed o f public,
private, and N G O sector participants and has the objective o f coordinating, promoting, and diffusing
work in watershed management. I t s Coordinator heads INRENA's Directorate o f Waters and Soils, and
i t s national technical committee i s composed o f public sector and N G O representatives. Among NGO-led
projects, the SESA (Sewicio Silvo Agropecuario) project at the National University in Cajamarca i s
perhaps the best known, especially for i t s work in reforestation and soil and water conservation.

Recommendations Regarding Soils

7.24 In large part, the recommendations below have a common origin: the progressive disinvestment
o f the Peruvian government in mechanisms to address soil degradation issues over the past 30 years.
Given the scarcity o f Peru's arable soils, this disinvestment has come at a price: high levels o f eroded land
and increasing salinity problems in many areas o f the Coast. A number o f changes in policy, technical
assistance, and investments would help redress this situation, in both the short and long terms.

Policy

1. Revise the 1969 Water L a w to authorize broad-based fees for water use. The restrictions o f the
1969 law were only partially addressed in 1989 and 1990 legislation, and the inalienable "right to water"
continues to be a powerful impediment to the use o f water charges. Allowing for water pricing where it
does not exist, and for higher charges where it does, will help address massive water use inefficiencies in
the Coastal valleys, and will lead to more rational resource management. Where water pricing does
already exist, in Coastal irrigation projects, water use fees are typically far below cost. Thus, in the short
run, increasing water use fees and the resulting longer-run improved land management patterns can be
expected to address soil salinization through less overuse, especially for rice. Moreover, funds can be
generated to invest in maintaining irrigation systems. Soil conservation research has demonstrated
significant payoffs from improved water use in the Sierra.

143
2. Create a new Water Resources Agency. Water i s a critical resource in Peru, with strict
competition for multiple uses, especially on the Coast and in the Sierra. Peru has several institutions with
a role in water management, but none that has broad-based responsibilities for the integrated management
o f Peru's water resources. INRENA's Water Resources Superintendency has general responsibility for
administering laws and regulations regarding soil and water management. As a practical matter, much of
INRENA's attention focuses on the Coast's irrigated areas, where INRENA jointly administers the
irrigation districts with the ATDRs; ultimate authority for water storage release rests with the AACHs.
INVADE focuses on construction and engineering issues in large-scale Coastal irrigation projects.
Transferring responsibilities for water management from INRENA and assigning this global task to a new
Water Resources Agency could be accomplished in the short run and with relatively l o w investment. T h i s
change could strengthen the general management o f this critical resource and better insulate the
government from the short-term demands o f water users. T h e Agency could continue to work with the
local ATDRs and AACHs, much as at present. INADE could continue i t s largely technical role. However,
the new agency would have an overall coordinating role as well as responsibility for assuring sustainable
long-term availability o f water resources, including reconciling short-term demands with long-term best
interests. T o assure i t s success, greater budget support than exists at present would be required.

Technical Assistance

1. Strengthen institutional technical capacity to address soil degradation. Peru's institutional capacity to
deal with problems o f soil erosion and soil salinity has diminished greatly since the 1970s. T h e ability o f
INRENA to address soil degradation should be strengthened over the medium to long run, even if only to
monitor and assess the nature o f these problems-and this should certainly be done if greater level o f
public sector intervention i s sought. This includes the Water Resources Office, OGATEIRN,
PRONAMACHCS, INADE and other offices. The creation o f a new independent Water Resources
Agency would enable INRENA to focus more narrowly on soil degradation issues.

2. Conduct comprehensive feasibility analysis o f soil conservation investments. Many millions o f dollars
o f both donor and government funds have been spent on soil conservation investments over the years.
However, the evidence on the costs versus benefits o f these investments i s inconsistent and out-of-date.
PRONAMACHCS has emphasized the building o f terraces (among other interventions), but some
estimates show the reconstruction o f traditional Andean terraces to be less expensive, Overall, i t i s not at
all clear which o f these conservation investments are cost-effective given current labor costs. There i s
likely to be considerable payoff from conducting, as early as possible, comprehensive feasibility analyses
o f alternative conservation investments before expending further funds. T h i s could be accomplished in the
short to medium run, with returns from improved public investment strategies generated over the long
run, as funding i s increasingly directed toward high-payoff investments and away from those with l o w
economic rates o f return.

Investments

1. Conduct new national inventories o f soil erosion and soil salinity. T h e last comprehensive inventories
were conducted in the 1970s (soil erosion) and 1980s (soil salinity), and are now severely out-of-date,
especially given the rate at which soils can degrade. New comprehensive soil inventories should be
conducted. Such inventories should constitute de technical input for a campaign aimed at raising
awareness about the constraints that soil degradation can impose on economic growth. Regarding soil
erosion, these inventories should have a national focus; regarding soil salinity, they should focus on the
Coastal valleys. They should be based on up-to-date soil monitoring techniques, equipment, and extensive
ground-truthing. Various government entities, including INRENA, are involved in the Ecological and
Economic Zoning (Zonifcacidn Ecoldgica y Econdmica) process, but these efforts are typically
inconsistent across levels and agencies o f government, and do not include conducting inventories o f soil

144
and water resources. Without an adequate and up-to-date data base to assess the magnitude and nature o f
soil erosion and salinity problems, other public policy alternatives are premature. Conducting these
inventories should be part o f a long-term strategy to use improved information on Peru’s soils to focus
future public investments in the most cost-effective manner and in the areas that have the highest
potential.

Deforestation

Current Situation

7.25 Based on the most recent data, Peru i s estimated to have 68.74 million hectares o f natural forests
(FA0 and INRENA, 2005). T h i s i s the world’s eighth most extensive forest cover and second to Brazil in
Latin America. Data fi-om Peru’s Report to the FAO’s Forest Resources Assessment (Table 7.9) show
that forest cover accounts for roughly 53.5% o f the total national territory o f 1.29 million hectares.
However, Peru’s forests are distributed highly unevenly across the country, with virtually all (99.4%) o f
the country’s forests located in the eastern (Oriente) part o f the country. The Coastal region has been
depleted almost entirely o f i t s forest cover o f mangroves and dry and sub-humid forests. In the Andean
highlands, somewhat over 300,000 hectares o f forests remain, including small extensions o f original
Polylepis forest.

Table 7.9. Peru: Total Forest Cover and by Regions, 1975-2005 (hectares)

7.26 At the outset, one must note that time-trend data o n forest cover and deforestation in Peru are not
highly conclusive, because they come from different sources and use diverse and non-comparable
methods o f data collection and estimation (Elgegren, 2005). Forest cover estimates for Peru’s Amazonian
region have been revised in a recent study conducted by Peru’s National Environmental Council
(CONAM) and INRENA.

7.27 The property rights regime governing forests in Peru i s composed o f two major categories:
private ownership and public (state-owned) property. Each has four major subcategories (Table 7.10),
although there i s little reliable data on forest cover for most private property. State-owned forest land i s
comprised o f Permanent Production Forests, available for timber production through public bidding or
competition; Conservation Concessions, non-timber forest concessions used for biodiversity conservation
projects and other non-consumptive activities such as ecotourism, research and education; Natural
Protected Areas, also used for biodiversity conservation as well as for cultural, landscape and scientific
uses; and State Reserves, available for subsistence purposes by indigenous groups. Currently, there are
over 25 million hectares o f permanent (sustainable) timber production, and over 14 million hectares o f
forests under protected area status.

7.28 Although Peru has extensive forest resources, it i s not a leading country in the production o f
timber and forest products. O f a total US$186 billion o f forest products traded internationally in 2002

145
(Seneca Creek Associates and Wood Resources International, 2004), Peru’s exports o f forest products
accounted for roughly $136 million that year, representing less than 0.01% o f world sales (INRENA-CIF,
2004). Nonetheless, Peru’s forest sector ran an annual average $116,280 trade account deficit for the
1994-2003 periods (INRENA, 2005). This suggests that great scope exists for further commercial
development o f Peru’s forestry resources.

Table 7.10. Forest Property Rights Regimes, 1990-2004

1990 2000 2004

Other areas3 I 20,140.69 I 1,203.26 13,784.31


1
TOTAL 69,213.26 68 742.06

O f t h i s land, some 7.5 million hectares are under concession contracts as o f October 2005.
’As o f October 2005, conservation concessions had increased to a total o f 199,623 hectares and ecotourism
concessions cover 43,190 hectares. The total area o f these categories now amounts to 242,813 hectares.
Definedas the difference between total forest and the two other categories.
Source: F A 0 and INRENA (2005)

7.29 Past analyses o f deforestation in Peru have shown dramatically different results. The most widely
cited estimate, which i s based on data through 2000 provided by Peru’s National Institute o f Natural
Resources (INRENA), has been an annual rate o f deforestation o f 261,000 hectares (Reitegui, 1996;
CIFOR, 2003), with cumulative forest loss o f 9.6 million hectares over the last 25 years. However,
C O N A M and INRENA jointly undertook a recent comprehensive study: the National Capacity
Strengthening Program to Manage the Impact o f Climate Change and Airborne Pollution (PROCLIM).
This study has recalculated deforestation for the period 1990-2000 for the Peruvian Amazon, based on
Landsat imagery (scale o f 1: 100,000), extensive ground-truthing, and forestry inventories on 120 forest
plots in the Peruvian Amazon.

7.30 Overall, the PROCLIM study estimates the deforestation rate between 1990 and 2000 at 149,632
hectares per year. This figure i s roughly consistent with a recent study conducted by the Universidad
Nacional-La Molina’s Conservation Data Center (CDC) and the World Wildlife Fund (WWF) o f three
areas in the Peruvian Amazon, which projected annual deforestation for 1996-2001 at 136,000 hectaresgg.
By comparison, estimates o f annual deforestation in neighboring countries are as follows: Bolivia
-168,000 hectares2 (1975-1993); Brazil - 1,850,600 hectares2 (1990-2004), increasing to 2,612,900
hectares’ in 2004; and Ecuador - 189,000 hectares’ to 300,000 hectares2 (Butler, 2004; Mecham, 2001).
Cumulative deforested areas in Peru’s Oriente Region show that San Martin, Amazonas, and Loreto are

The USAID-sponsoredCDC-WWF study involves three regions covering about 7.87 million hectares, or roughly 10.2% o f the
Peruvian Amazon.

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the regions most severely affected by deforestation, followed by Junin, Ucayali, and Huinuco (Table
7.11). Most o f this forest loss i s due to land conversion to agnculture and grazing, but other drivers
include road opening and maintenance, coca cultivation and illegal logging (discussed in next section).

Table 7.11. Cumulative DeforestedArea through Year 2000 by Department

Department Deforested Area (ha) % of total deforested area


San Martin 1,327,736 18.5
Amazonas 1,001,540 14.0
Loreto 945.642 13.2
Junin 734,304 10.2
Ucayali 627,097 8.7
Huanuco 600.655 8.4
cusco 537,632 7.5
Caiamarca 520.062 7.3
Pasco 302,021 4.2
Madre de Dios 203,892 2.8
Puno 146,04 1 2.0
Ay acucho 135,373 1.9
Huancavelica 51,991 0.7
Piura 3 1,737 0.4
L a Libertad 7,232 0.1
TOTAL 7,172,954 100.0

Department Adjusted Deforestation Estimated M e a n Annual % Increase in


Deforestation 2000** Increase in Deforestation Deforestation
1990" (ha) (ha) Deforestation 1990-2000 (ha) 1990-2000
1990-2000 (ha)
Amazonas 645,582 1,001,467 355,885 35 588,52 23.78
Loreto 638,071 945,591 307,520 30 75 1,97 20.55
Cajamarca 366,618 520,030 153,413 15 341,29 10.25
cusco 395,850 537,601 141,752 14 175,16 9.47
Madre de Dios 79,268 203,879 124,611 12 461,lO 8.33
Junin 622,859 734,273 111,414 11 141,36 7.45
Ucayali 547,750 627,064 79,315 7 931,48 5.30
Huinuco 532,457 600,620 68,163 6 816,30 4.56
Puno 101,358 146,033 44,676 4 467,55 2.99
Piura 287 31.735 3 1.448 3 144.81 2.10
Huantavelica 23,561 5 1,987 28,426 2 842,61 1.90
San Martin 1,300,O 14 1,327,669 27,655 2 765,47 1.85
Pasco 287 353 302 008 14 6 5 5 1 465 5 1 0 98
Ayacucho 128,642 135,366 6,725 672,47 0.45
L a Libertad 6,570 7,23 1 662 66,17 0.04
TOTAL 5,676,236 7,172,554 1,496,3 186 149,63 1,76 100.0

I Source: PROCLIM (2005)

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7.3 1 The recent estimate o f Peruvian deforestation o f roughly 150,000 hectares annually should not be
interpreted as a decline in the rate o f deforestation from earlier years, but rather as an improved
e~timate.'~ As discussed in Chapter 3, the estimated annual cost o f deforestation during the 1990-2000
decade i s U.280-590 million. T h i s includes the estimated value o f the sustainable flow o f future forestry
benefits. From Table 7.12, it i s clear that Amazonas i s the Department with the largest increase in
deforestation during this period, followed by Loreto and Cajamarca, while the Departments with the
smallest increase in deforestation for the same period are L a Libertad, Ayacucho, and Pasco.

7.32 Forestry plantations are o f increasing importance in Peru. Reforestation programs date from the
1960s, when they were supported by an IDB loan that permitted the reforestation o f 56,000 hectares
through 1974. T h i s was followed by an Amazon Reforestation Royalty in the 1980s (100,000 hectares),
and since 1988, promotion o f reforestation in the Sierra by the National Watershed Management and Soil
Conservation Program (PRONAMACHCS). The result o f these efforts i s the growth o f forestry
plantations from about 262,997 hectares in 1990 to 754,244 hectares in 2003 (FA0 and INRENA, 2005).
However, most o f this land i s designed for watershed protection, not timber production.

Causes of Deforestation

7.33 The causes o f deforestation in Peru are varied and complex. The proximate causes o f
deforestation typically receive greatest attention, though a recent study by Alcalde (2002) also addresses
the enabling conditions behind deforestation in Peru. As i s true throughout much o f the world, small
subsistence migrants from the Sierra and some parts o f the Coast use slash-and-burn agriculture to open
their small agricultural plots. Rowe et al. (1992) estimate that smallholder agriculturalists account for as
much as two-thirds o f deforestation globally. Large-scale commercial agriculture and plantations convert
forested land to agricultural use for commercial crops such as o i l palm, sugar cane, rubber, coffee, cacao,
and tropical h i t . This sometimes pushes small subsistence migrants even further into the forest.
Narcotics traffickers clear forests to grow coca and to build illegal runways to transport illegal drugs,
mainly coca base paste and cocaine. Garnica (2001) estimates that coca plantations have deforested 2.3
million hectares in Peru, about half o f which i s in San Martin (800,000 hectares) and Hudnuco (450,000
hectares); i f accurate, this would account for nearly one-third the total deforestation in the Peruvian
Amazon.

7.34 Cattle ranching, typically in areas from 30 to 50 hectares (unlike the extensive cattle ranches in
the Brazilian Amazon), sometimes pushes small subsistence migrants further into the forest. Loggers
build forest roads to transport commercial timber from the harvest area to the main roads; these
secondary roads then allow migrants into the forest. Petroleum, natural gas and mining all involve
geographically focused direct impacts on forests due to exploration and exploitation activities, including
the construction o f roads and facilities, as well as indirect impacts associated with increased colonization
and agricultural land uses due to those activities. Rural colonization programs have promoted the
relocation o f colonists into forested land. Infrastructure development, particularly the opening o f roads,
has promoted forest clearing and has made millions o f hectares o f tropical forests more accessible to
colonization by settlers. Although it i s not intrinsically destructive o f forests if conducted in a sustainable
fashion, firewood gathering and charcoal production tends to significantly affect the forest and forest
fauna to the extent it i s highly selective o f commercial timber species and closer to urban areas.

7.35 Illegal logging and, more generally, illegal trade in timber are an important cause o f
deforestation. Since forest concessionaires must pay harvest fees and produce according to costly

89 T h e earlier estimate o f 261,000 hectares annually beginning in the mid-1970s through the end o f the 1990s was based on
alternative methodologies that are not directly comparable with the improved estimates obtained from the PROCLIM study (see
Table 7.9).

148
sustainable forest management plans, illegal loggers have a competitive advantage from avoiding these
costs. Illegal harvesting i s highly selective: 80% o f mahogany i s reported to be illegally extracted and
sold. The worldwide economic loss from illegal logging has been estimated in the range o f $10-1 5 billion
annually (Contreras-Hemosilla, 2002) to $23 billion (Seneca Creek Associates and Wood Resources
International, 2004). In Peru, conservative estimates value the economic cost o f illegal logging associated
to mahogany alone at $40-70 milliodyear (M. Romero, WWF-Peru, personal communications, 2005). I t
should be emphasized that without a market in the illegal timber trade, illegal logging would not be a
remunerative activity.

7.36 Recent PROCLIM data on the current uses o f Peru’s deforested land provide some idea o f the
magnitudes o f the different factors leading to deforestation. The data show that agnculture-including
cultivated land, fallowed land, and newly opened agncultural plots-covers approximately 609,5 15
hectares o f the Peruvian Amazon. This includes annual crops such as maize, cassava, and rice, and
perennial crops such as citrus, sugar cane, banana, o i l palm, and peach palm. About 440,000 hectares
(63.8% o f total deforested agncultural land) i s in three Departments: Amazonas, San Martin, and Loreto.
Grazing and pasture use account for nearly twice as much land (1,179, 983 hectares), with four
Departments (Amazonas, Cusco, Ucayali and Cajamarca) accounting for 63.4% o f the total. Secondary
forests cover 2,067,765 hectares, o f which 76.5% i s in the Departments o f San Martin, Loreto, Cusco,
Huhnuco, Amazonas, and Ucayali. A mixed category o f secondary forests and agriculture occupies an
estimated 3,166,728 hectares, by far the largest in the Peruvian Amazon, more than half (52%) o f which
i s in San Martin, Loreto and Junin. Finally, a ‘bare land’ category o f 65,565 hectares includes areas
occupied by energy and mining infrastructure; more than half o f this i s in San Martin and Loreto.

7.37 More basic enabling causes o f deforestation underlie these factors (Alcalde, 2002; Roger and
Roberts, 1999). Peru’s annual population growth i s approximately 400,000 inhabitants o n a base o f
roughly 26,749,000 total inhabitants (INEI, 2002), leading to increasing demand for land and resources.
As previously discussed, poverty in Peru i s extensive, with over half (51.6%) o f the population in
conditions o f poverty, and the extreme poor accounting for nearly 25% o f the population (MI,2004).
As much as 70% o f the rural population i s estimated to live in poverty. Malnutrition and food insecurity
are highly correlated with poverty. I t i s logical for the rural poor, given their limited economic
opportunities, to regard the country’s forested areas as an attractive solution to their economic problems.

7.38 Other causes o f deforestation relate to policy failures or unforeseen impacts. Tax exemptions for
imported equipment and machinery, and government-supported infrastructure projects have promoted
regional development at the expense o f impacts on forests. The B e l a h d e administration in the 1960s and
1980s promoted agriculture in the Amazon basin, misconceiving this region as the nation’s food pantry.
Land titles in Peru are still granted only on deforested land, so that land suitable for forestry purposes i s
converted to agriculture or cattle ranching. Most recently, the CDC has released a report (2004)
correlating deforestation rates in Huallga, Pachtea-Aguaytia, and Aprurimac valleys with road
rehabilitation sponsored by USAID and Peru’s Ministry o f Transport and Communication. They find one
additional kilometer o f road opening and maintenance i s associated with 1,000 hectares o f forest loss.
There i s concern among many that the opening o f the Inter-Oceanic Highway connecting Brazil with
Peru’s Pacific ports may greatly stimulate in-migration and deforestation if l e f t uncontrolled.

7.39 Past studies’ lack o f comparable data and their analytical methods limit the ability to accurately
estimate changes over time in deforestation. However, a good deal o f anecdotal evidence suggests that
many o f the factors that underlay deforestation in the 1980s, and that may have retrenched in the 1990s,
may resume their roles in the current decade. Weak economic growth that characterized much o f the
1990s has reversed course, and, on both supply and demand sides, a stronger national economy would be
expected to contribute to pressures on forest resources. Peru’s internal security situation was precarious in
the 1990s and led to significant migration from rural to urban areas helping relieve the demand for forest

149
products. However, the security situation has improved markedly. Migration to areas in the Oriente,
especially from the Coast continues, and pressure on forest resources continues due to land
encroachment, lack o f adequate titling and poor enforcement capability. The exploitation o f forestland for
coca plantations continues, although the inherent nature o f this activity makes estimates o f i t s magnitude
difficult. Finally, following a decade or more o f little government investment in infrastructure projects,
the construction o f the Inter-Oceanic Highway has the potential to greatly exacerbate deforestation in the
affected areas. In sum, the combination o f factors which, by some accounts, may have lessened the
pressures on Peru's forest resources in the 1990's, together have the potential to exacerbate deforestation
in the current decade if not addressed.

7.40 A final underlying cause o f deforestation i s the lack o f understanding and economic
undervaluation o f the environmental services provided by the forest, which discounts their incorporation
into private and public decision making. A variety o f studies i s starting to provide insights into these
economic values. FONDEBOSQUE (E. Toledo, personal communication, 2005) has recently estimated
the economic loss due to slash-and-bum agriculture in Peru's Amazon basin, including timber and non-
timber products, at US$1.6 to US$2.0 b i l l i ~ d y e a r . 'Chambi
~ (2002) estimates the carbon sequestration
value o f forestland covering 2.26 million hectares in Madre de Dios, Puno, and Cuzco at $1.26 billion in
the year 2000, projected to $2.47 billion in 2010. H e also estimates the total economic value o f
biodiversity as US$1.851 billion in 2000, including both direct (e.g., fishing, Brazil nuts and timber),
indirect (e.g., carbon sequestration), option and existence values. Portilla (2002) estimated the total
economic value o f the 86,673-hectare Cerro Escalera Protected Forest in San Martin at $496.5 million in
the year 2000, including both direct and indirect (environmental service) values. Malca (2002) estimates
willingness-to-accept in compensation for changing the actual land use from shifting cultivation to
conservation ($67ihectares/year) and agroforestry ($45SO/hectares/year). Three willingness-to-pay
studies o f entrance fees to national parks and protected areas find that average WTP i s 50-100% higher
than current entrance fees (Buendia, 1999; Diez, 2002; Vigo, 2005), suggesting considerable scope for
recovering higher economic surpluses.

Institutional and Policy Framework

7.41 Prior to the year 2000, Peru's forest sector was governed by the 1975 Forest and Wildlife L a w
(Law No. 21 147). This law was conceived o f as a redistributive mechanism to encourage resource-poor
loggers to enter forest-related activities and thereby alleviate rural poverty. In addition to this
questionable premise, the law had a number o f serious flaws in execution. Annual forest contracts were
overly small (1,000 hectares) and not economically viable; this was compounded by the problematic role
o f intermediaries (habilitadores), and led to a great deal o f unauthorized timber harvesting and trade,
especially in mahogany. Very little recognition was given to the needs o f indigenous populations. The
existence o f an exploitative relationship-described as a "feudal" relationship (Bedoya and Bedoya,
2005)--between the timber industry, intermediaries, and resource-poor small loggers made it difficult for
the latter to operate effectively. Overall, the law l e f t considerable scope for ambiguity and corruption in
the management o f forestry contracts.

7.42 A number o f initiatives, including preparation o f a National Forestry Strategy covering 1985-
1996 and a national debate extending over much o f the 1990s, eventually led to the passage o f the new
Forestry and Wildlife L a w (No. 27308) in 2000, designed to promote the reform and modernization o f
the country's forest sector. In 2001, the regulatory framework supporting the law was also passed.
Enactment o f both the law and regulatory framework followed intense national debate in Congress and

'O T h i s figure i s based on an estimated deforestationrate o f 250,000 hdyr, and thus should be revisited in view of the results o f
the PROCLIM Project, which estimated annual deforestationin Peru's Amazon at roughly 150,000 hdyr.

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public forums among timber industry representatives and those with a stake in the old system, as well as
local and international organizations, community leaders and other authorities.

7.43 The new Forestry L a w and its centerpiece, the introduction o f timber concessions under
INRENA's supervision, represent a significant improvement over the old legal framework, although
implementation problems continue. The new framework for timber concessions9' has the following main
features: (1) Access to timber resources through transparent public bidding. (2) Concessions may become
tradable. (3) Concessions are granted for 40 years (versus annual contracts under the old law), renewable
based on five-year compliance evaluations. (4) Concessions cover from 5,000 to 50,000 hectares (versus
1,000-hectare contracts previously). (5) A General Forest Management Plan (PGMF), containing
financial projections for the 40-year contract period, i s required immediately after signing the contract.
(6) A specific Annual Logging Plan (POA), mapping the trees to be harvested each year, i s required prior
~ ~ Concessions may be used as collateral for accessing bank
to the authorization o f h a r v e ~ t i n g .(7)
financing. (8) Incentives are introduced for (i)voluntary forest certification to promote access to
international markets for certified wood products (a 25% discount on annual harvest fees); and for (ii)
processing timber locally, to promote increased value added and the generation o f employment at the
local level (an additional 25% discount o n the harvest fee).

7.44 INFENA launched the forest concessions process in March 2002, after establishing the forestry
base suitable for timber production (column two in Table 7.13). T h e total area o f potential forest
concessions amounts to 24.34 million hectares, almost 15 million o f which are in Loreto. By the end o f
2004, over 7.5 million hectares o f forest had been awarded in the form o f forest concessions to 576
concessionaires for timber production in Madre de Dios, Ucayali, Huhnuco, San Martin, and Loreto.

7.45 The new Forestry L a w introduced some other innovative features. A new forest use category,
Forest Recuperation Areas, was defined, where concessions can be granted o n bare or open land for
afforestation and reforestation. The L a w created Forest Management Committees to involve local
stakeholders in monitoring sustainable forest use to help assure compliance with the Law, the PGMFs,

9' The Forestry and Wildlife L a w o f 2000 and its 2001 Regulation permit other forms o f access t o timber resources: (1) permits
from native communities, (2) permits from private agricultural and grazing plots, (3) extraction from local forests, (4)
authorizations from northern tropical dry forests, (5) authorization for clear cutting (e.g., for road opening) and (6) authorization
for the use o f trees and shrubs stranded on river banks. Other forms o f access to non-timber resources include (1) Brazil nut
concessions, (2) afforestatiodreforestation concessions, (3) conservation concessions, (4) protection concessions, and (5)
ecotourism concessions.
92 Failure to submit the General Plan or the Logging Plan to INRENA for approval, or not getting approval, i s a cause for
nullifyingthe concession contract.

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and the POAs. T h e L a w also created so-called 'Local Forests', 500-hectare forest plots for use by local
communities. Finally, the law introduced the possibility o f financing environmental services provided by
forests for soil protection, water regulation, biodiversity conservation, and other purposes. In August
2005, INRENA formed a task force to plan PEPS implementation.

7.46 INRENA's Forestry Superintendency i s responsible for managing forestry concessions and
related programs. The Multi-Sectoral Commission to Fight Illegal Logging, created in 2002 with
representation from several ministries and SUNHAT (the national tax agency), released the National
Strategy to Fight Illegal Logging in November 2004. It was succeeded by another commission o f the
same name, which became operational in March 2005, whose mandate i s to implement the National
Strategy to Fight Illegal Logging through the following three actions. (a) Strengthen INRENA's
organizational and institutional capabilities in forest control and supervision. (b) design and implement a
system for law enforcement, timber tracking, forest raids, and timber trade transparency. (c) Promote and
support participation by civil society and the local population in forest control and supervision. As part o f
the strategy, INRENA i s developing a computer system and database to effectively review, evaluate, and
manage concessions nationwide.

7.47 Other agencies and organizations are also important in the forestry sector. The Supervisory
Agency for Forest Resources (OSINFOR), which was absorbed into INRENA in 2004, i s charged with
enforcing the forestry law, including the GoP's quota o n mahogany exports, now set at 23,621 metric
tons. The concentration o f both management and enforcement responsibilities in INRENA has resulted in
ambiguity and inconsistency in the execution o f governmental management functions. Like similar
institutions in Brazil, Paraguay, and elsewhere, Peru's National Forestry Consensus-Building Roundtable
(Mesa Nacional de Dicilogo y Concertacidn Forestal - MNDCF) i s composed o f numerous prominent
governmental agencies and NGOs, and played a key role in facilitating the implementation o f the new
forestry law. It continues to be a locus o f consensus building in the forestry sector, and i s being replicated
in several regions o f the country, including Ucayali, San Martin, Tingo Maria, and Loreto. The National
Protected Areas System (SINANPE) includes 25 NPAs, protecting over 14 million hectares o f Peruvian
Amazon ecosystems, approximately 20% o f the region. The NPA L a w o f 1997 allows for the creation o f
Private and Regional Conservation Areas outside o f SINANPE and some o f them may be located within
the Amazon. Supreme Decree No. 037-99-AG requires INRENA's technical input regarding overlaps of
proposed private apcultural plots and NPAs with forest resources prior to issuing land titles in the
Amazon. Supreme Decree No. 003-2005-AG declares deforestation as a priority o f national interest and
assigns the responsibility o f preparing the National Reforestation Plan to INRENA and a number o f other
institutions. The Plan i s pending approval as o f December 2005.

7.48 Nongovernmental programs play an important role in Peru's forestry sector. The Netherlands-
funded Project (Institutional Support to INRENA with a Focus on the Forest Sector) was a US$2.1
million effort to implement sustainable forest management in the Amazon through institutional
strengthening o f INRENA, including support for a decentralized forestry administration system,
improved communications and training, and leveraging donor funding. The project supported the
launching o f the concession process and helped INRENA s i g n 338 forest concession contracts through
July 2004.

7.49 The Certification and Development o f Peru's Forest Sector Project (CEDEFOR) i s an ongoing
USAID-fundedproject, originally for US$16 million, to help reform, modernize, and promote sustainable
management o f the forest sector, through institutional strengthening in forest management,
implementation o f sustainable forest management and forest certification, and strengthening business
management capacities and improved market access, especially for certified markets. Project results
include providing technical assistance to 132 (23%) o f 576 existing forest concessions; helping INRENA
in the review and approval o f 86 Forest General Management Plans (representing 1.53 million hectares),

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and 62 Annual Logging Plans; advising on the creation and operation o f 21 Forest Management
Committees; assisting in the certification o f roughly 63,000 hectares o f forests; helping in the generation
o f 615,734 temporary jobs; and generating almost $10 million in timber sales through June 2005 (WWF-
Peru Program Office, 2005).

7.50 The Forest Development Promotion Fund (FONDEBOSQUE) i s a public-private organization


(presided over by the head o f INRENA) and funded mostly by the donor community. I t s objective i s to
promote investment in sustainable and competitive forest enterprises and in environmentally responsible
projects generating economic opportunities and biodiversity conservation. As o f July 2005, i t s portfolio
amounted to US$20.4 million, with US$16.8 million, or 82.3%, from international donors.
FONDEBOSQUE’s portfolio focuses on implementing forest concessions (15.2% o f portfolio),
intermediate technology for sustainable forest use (3.7%), forestry plantation development (27.4%),
sustainable communal forestry management (19.4%), and i t s own institutional creation and strengthening
(49.6%). Specific projects have provided the following: (1) technical assistance to 31 forest
concessionaires, including timber processing; (2) support to Brazil nuts harvesters (394,106 hectares); (3)
support for construction o f the first industrial timber products factory in Madre de Dios; (4) creation o f a
Forest Development Center in Oxapampa, with an estimated production o f 730,000 seedlings; and (5)
Creation o f a forest business information center.

Evaluation of Forest Concessions

7.51 The introduction o f the forest concessions process i s an important improvement in the effort to
bring effective sustainable forest management into a sector that, in the past, has been plagued by
inefficiency, informality, and corruption. However, issues pertaining to implementation o f the new legal
and institutional framework will continue to require GoP’s attention. Thus far, the concessioning process
has been implemented on a largely ad hoc basis, and much remains to be done to make the process more
effective and credible. Criticisms to date include i t s inadequate planning and scheduling o f the initial
public bidding process; poor mapping o f the concessions, in turn creating access difficulties to
concessions and concessionaire complaints that they do not receive what they bid for; lengthy delays in
PGMF’s and POA’s review and approval, malung timely (i.e., dry season) harvesting difficult; and
inadequate monitoring o f illegal timber trade.

7.52 Concessionaires often do not have adequate capital, access to credit, or sufficient technical, and
business and forest management experience to make their concessions economically viable enterprises.
T w o separate and independent surveys (WWF’s o f 47 concessions and Universidad del Pacifico’s o f 4)
have determined that the concessions are economically feasible and that the primary limitation for most
concessionaires lies in the lack o f operating capital. T h e rate o f delinquency in the payment o f harvest
fees i s high so far. T o date, only 36 concessionaires o f the 343 concessions granted in the f i r s t and second
public bidding (2002 and 2003) have paid their harvest fee; the remainder (92%) should have their
contracts nullified, per the Forestry Law.

7.53 Illegal logging and, more generally, illegal trade in timber continue t o be a major problem,
challenging existing government institutions. There are inadequate surveillance and control systems to
combat illegal logging, particularly in issuing harvest and transport authorizations (which permit the
laundering o f timber from private land and indigenous communities). Part o f the problem i s that, although
infractions are specified in the Forestry L a w (Article 363), accompanying sanctions are not (Glave and
Morales, 2006). InNovember 2004, INRENA began random concession inspections in Madre de Dios to
verify compliance with the PGMFs and POAs, and to monitor mahogany extraction as required by
CITES commitments. O f 23 inspections conducted, INRENA detected violations in five concessions,
involving the laundering o f $2 million worth o f mahogany. By law, OSINFOR should nullify these
concessions and the areas returned to public control. Violators should be prosecuted as required by law.

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However, until June 2005, n o legal action had been concluded against the violators, illustrating the GoP's
weak capacity to enforce the law.

7.54 Thus far, the GoP has lacked the institutional capacity t o accomplish the desired reform and
modernization o f Peru's forest sector. INRENA's institutional weaknesses arise from the lack o f
prioritization o f forestry policy, insufficient funding, inadequately trained staff, lack o f adequate forestry
information and intelligence, excessive bureaucracy (corruption has been alleged at some INRENA
offices), and even simple things like not working weekends (unlike illegal loggers, who do). The
increasing transfer o f jurisdiction from the central t o regional governments as part o f the Decentralization
Framework i s needed. However, thus far, there has been only limited participation by local stakeholders,
including NGOs, in the concessioning process. Effective decentralization will require time, and technical
and administrative support. There i s a need for greater involvement by c i v i l society, including local and
indigenous populations, in the concessioning process, through such mechanisms as the National Forestry
Consensus-building Roundtable and the regional roundtables. Such forums could constitute an adequate
t o ensure that the concessioning process contemplates the rights, traditions, culture, and languages o f
indigenous populations. Land tenure problems continue t o exist, including overlaps o f land claims (native
community territories, protected areas, private plots, etc.), inadequate mapping o f concessions, and
conflicts between concessionaires and newly arrived migrants (Bernales, 2006).

Recommendations Regarding Forests

7.55 The new Forestry l a w and institutional framework represents a significant improvement over the
1975 Law; however, forestry institutions and administrative processes need significant strengthening.
Among the recommended changes in policy, technical assistance, and investment strategies are the
following.

Policy

1. Improve positioning: o f forest concessions t o foster success. The forest concessions are at the heart o f
Peru's new forestry policy and are key to its eventual success. In the short run, the GoP should
consider temporarily suspending bidding and the issuance o f n e w timber concessions until needed
changes are made. I t i s preferable t o focus first o n the consolidation o f existing concessions and
assuring their economic feasibility. In the future, efforts should be made t o attract larger investors for
the remaining forest concessions, approximately 9 million hectares.

The participation o f stakeholders in the design and implementation o f the essential changes may
enhance their understanding o f the need to temporarily suspend the concessioning process, and should
therefore be considered as an important element t o overcome political and social resistances t o such
measure (Bernales, 2006). Consideration should be given t o creating a secondary market, where
forest concessions could be traded and thus attract private investment, the forging o f alliances with
international buyers focusing o n certified markets, and strengthening o f the concessionaires' capacity
to become part o f a chain o f production and hence secure a demand for their timber (Bernales, 2006).

The criteria for concessionaire profiles need t o be revised for future bidding. Future criteria should
pay more attention to such elements as higher capital requirements and adequate equipment furnished
by bidders. The economic proposal should receive more weight relative t o the technical

93 In the first bidding competition o f 2002, the technical proposal counted for 70% and the economic proposal for 30%. In the last
process (Loreto, 2004), the distribution was modified to 90% for the technical and 10% for the economic proposal. Neither
approach gave adequate weight to economic and financial criteria.

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Promoting the formation o f bidding consortia seems to be a sensible solution, but consortia should
provide complementary proposals, and strict criteria should be used in forming consortia: minimum
areas, minimum capital requirements, etc. Technical assistance (in forest and business management
and administration) should be directed to a limited number o f concessionaires that have shown the
commitment and potential to become certified and have actual or potential links with foreign markets.

2. Strengthen INRENA. INRENA's limited funding and staffing, along with the limitations o f the newly
created OSINFOR, are major constraints on GoP's capacity to manage, monitor, and enforce
compliance with forest management regulations. Even with the technical assistance provided by
donor-supported projects (US and Dutch governments) and FONDEBOSQUE, significantly greater
efforts are required in many areas, including systematic inspections o f concessions to ensure
compliance with forestry regulations; better monitoring and enforcing o f harvesting and
transportation authorizations; building, equipping and staffing forest check points; consolidation o f a
national information network to control fraudulent trafficking o f timber; closer coordination with
Peru's Tax Service (SUNAT); more active participation o f local and indigenous populations through
the Forest Management Committees and Local Forests; work with NGOs and the private sector in
providing technical assistance to concessionaires; and communication and education activities. This
effort will only succeed with long-term GoP commitment.

3. Improve control o f illegal lorrning and timber trade. Existing gaps in the legal framework should be
addressed to better attack illegal logging and trade in timber. In the short term, illegal logging should
be clearly defined as a criminal act and specific sanctions should be established for specific
infractions, with offenders prosecuted and penalties assessed without other concurrent crimes having
to be committed to allow this. Longer term, greater support should be given to SUNAT, OSINFOR,
and INRENA in their ability to enforce compliance, impose fines and collect them. The ambiguous
relationship between INRENA and OSINFOR (which surfaced as recently as December 2005) limits
the effectiveness o f both. The GoP should consider placing OSINFOR in the P C M to enhance i t s
stature and likely effectiveness. The effectiveness o f the Multi-Sectoral Commission should be
evaluated. INRENA's database could be expanded into a "forestry intelligence center" as a
clearinghouse o f timely, accurate information on timber concessions and illegal logging.

4. Promote more active stakeholder participation in forest management. Over the medium and longer
term, this should include the expansion and strengthening o f the local Forest Management
Committees and providing technical support to them. The National Forestry Roundtable (MNDCF) i s
an important locus for stakeholder involvement at the national level. T h i s model should be replicated
at the localhegional levels through Mesas Regionales de Concertacidn y D i d o g o Forestal wherever
possible; these already exist in several departments.

5. Promote alternative sources o f revenue generation in forest management to supplement GoP and
external funding. Once the concessions are o n a firm financial footing, harvest fees might be
increased and the proportion o f fees received by OSINFOR could be increased to support
enforcement efforts (care would have to be taken to avoid conflicts with INRENA on this score). A
strengthened focus on sustainable forest management practices throughout the industry would
highlight the importance o f financial viability, which has been a chronic problem in the past. In the
future, transferring responsibility o f monitoring and enforcement schemes to the logging industry
i t s e l f should be considered, such as in the case o f Guatemala's system o f forest auditors (regentes
forestales).

6. Address land tenure and titling problems in forestrv concessions and surrounding areas. INRENA
needs to review i t s concessioning procedures to avoid titling conflicts. The law requiring the cutting

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o f forests to get private land title should be revised. This will entail a closer coordination with the
Special Land Titling Program (PETT), the Ministry o f Energy and Mines, and other GoP agencies.

Strengthen international markets. Many o f the above constraints result in a lack o f international
competitiveness in forest product markets. Peru has much to gain from a greater involvement in
international markets, if properly managed. This could include, for example, market development
activities, business feasibility analysis, and identification o f critical constraints on Peruvian industry
(such as transportation constraints). Trade agreements and operations in the emerging market o f
responsible forest products should be promoted, including collaboration with the WWF-led Global
Forest Trade Network.

Strenahen the participation o f indigenous populations in forestrv management to mitigate problems


with the concessioning process and to minimize conflicts over land tenure. There i s handful o f key
native communities that may benefit from the support given to the existing concessions. This should
be coordinated closely with representative indigenous populations’ associations and bodies, such as
the Inter-ethnic Association for the Development o f the Peruvian Jungle (AIDESEP); the Peruvian
Indigenous and Peasant Agroforestry Coordinating Body (COICAP); the National Institute of
Peruvian Andean, Amazonian and African Peoples (INDEPA); and individual native communities at
the local level. Greater effort should be made to involve indigenous groups in the local Forest
Management Committees wherever possible.

Technical Assistance

1. Provide support for the decentralization o f forest management. INRENA’s current initiative to
delegate functions from i t s central office to i t s regional branches (ATFs) and regional governments
should be supported and reinforced. The movement toward decentralizing INRENA’s functions i s
underway and needs greater long-term support. However, regional governments currently lack the
administrative and technical capacity, funding and staffing to do this adequately, and these needs
should begin to be addressed in the short term. Checks and balances need to be built into forest
management at the regional level, and independent third-party involvement in forest management
should be considered. INRENA’s commitment to Permanent Production Forests should be continued
even as i t s functions are increasingly transferred to the local and regional levels. Greater transparency
in the concessioning process will be needed if local stakeholders and regional governments are to be
effectively involved. Bidding processes and procedures, in particular, need to be fully disclosed. The
creation o f Forest Management Committees and Local Forests should be reinforced; these
mechanisms are currently inadequate for effective forest control and surveillance.

2. Strenahen technical assistance to the forestrv sector through FONDEBOSQUE and other institutions,
including promoting forest certification and sustainable logging practices; technical support for tree
plantations, reforestation, and agroforestry; introducing technical innovations to reduce wood product
waste; and promoting improved technologies for forest product processing.

3. Promote greater attention to Reduced Impact Logging (RIL) to moderate i t s environmental effects.
Brazil’s extensive experience with RIL should be considered in light of Peru’s similar conditions. RIL
includes management practices such as pre-harvest inventory and mapping o f trees, vine-cutting, and
planning o f roads and skidtrails; directional felling; cutting stumps l o w to the ground; constructing
roads and skid trails o f optimum width; winching o f logs to skid trails; constructing landings o f
optimal size; and minimizing ground disturbance and slash management (Holmes et al., n o date).
Widespread use o f these practices not only mitigates the environmental impacts o f logging but also
can result in higher profitability. C O N A M and/or the Ministry o f Transportation should be involved
in this dialogue given their national-level authority. The construction of the Inter-Oceanic Highway

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provides an important opportunity for the use o f these practices and other means to moderate the
impacts o f road construction and logging.

Investments

1. Improve the mapping, zoning. and forest inventories o f Permanent Production Forests. This should
precede the launching o f new bidding processes in order to more clearly define land use patterns in
the areas where concessions will be granted. This will address two major problems associated with
the current bidding process: (1) conflicts over property rights, stemming from multiple claims on
forest concession lands; and (2) inadequate infomation on accessibility (roads and rivers), species
composition, and the economic potential o f the plots for which bids are sought.

Biodiversity Conservation

Current Situation

7.56 Peru i s recognized as one o f the twelve "mega-diverse" countries o f the world. I t hosts 70% o f the
world's biological diversity and contains some 25,000 plant species, 460 mammal species (the third most in
the world), over 340 amphibian species (the fourth most in the world), 1,811 bird species (second in the
world to Colombia), 365 reptile species (the fifth most in the world), and almost 2,000 marine and fieshwater
fish species (the most in the world) (Brack, sd; Portilla, 2002; Skchez et al., 2005). Peru's species endemism
i s also very high, with at least 6,288 endemic species, 5,528 species o f flora and 760 species o f fauna
(Shnchez et al., 2005). However, Peru also has a long l i s t o f endangered species, including 301 fauna
species, o f which 23 are considered "critically endangered"; 332 orchid species; and 375 other species o f
flora (INRENA, 2005).

7.57 There have been numerous collaborative efforts to establish baseline data, assess, and monitor
biological diversity in different biodiverse or biologically fragile sites (Table 7.14). The Conservation
International-Birdlife International ongoing effort in the Tropical Andes region has identified 128
Important Bird Areas, covering 19,120,000 hectares, where 1,642 bird species have been identified,
including 87 threatened species (Boyla and Estrada, 2005). Conservation International has led Rapid
Assessment Programs in at least six biologically important areas (Table 7.14), in each case identifying
new species o f plants, mammals, reptiles, frogs, and birds not previously known to science. Some o f
these efforts were initiated as part o f the large Camisea natural gas project during 1996-1999. The Field
Museum o f Chicago has sponsored Rapid Biological Inventories in two areas. In collaboration with the
Frankfurt Zoological Society and INRENA, the National Agrarian University-La Molina's Center for
Data Conservation (CDC) has undertaken a number o f exercises to standardize environmental monitoring
for the National Protected Areas System (SINANPE). The World Wildlife Fund also tried to produce a
national monitoring system to measure SINANPE's managerial capacity and biological diversity
conservation.

7.58 These efforts have been mostly implemented by local and international NGOs, and by projects
funded by the international donor community. A consistent long-term, national-level monitoring system to
gauge the progress o f biodiversity conservation does not exist. C O N A M i s currently leading an effort to
establish regional guidelines that can be applied in regional monitoring efforts, beginning in 2006 in
Loreto in conjunction with the Peruvian Amazon Research Institute (IIAP), INRENA's Protected Areas
agency (SINANPE) and Biodiversity Conservation Directorate, and other organizations.

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7.59 A variety o f different methodologies has been employed in these biodiversity-monitoring efforts.
Some o f the most notable include those o f T h e Nature Conservancy (TNC), including Conservation Action
Plans (CAPS), identifylng conservation objectives, threats, causes, and losses; TNC's biodiversity
"scorecard'l, applied to management capacity and often to biological monitoring at a conservation site; and
Threats Monitoring, conducted by TNC's local partner, the Conservation Data Center at Universidad
Nacional-La Molina. At two major sites, Pacaya Samiria and Central Selva, the TNC-CDC effort has
employed satellite imagery from 1997, 2001 and 2003 to monitor changes in forest cover as an indicator o f
illegal logging, with site visits and overflights to ground-truth the data. Conservation International's approach
to biodiversity conservation, which includes Rapid Assessment Programs and biological assessments, highly
coincides with TNC's, and focuses primarily on the National Protected Areas System. The biodiversity
information and monitoring system employed in the Camisea project i s based on the Shannon Index,
employed widely in community ecology.

Table 7.14: M a j o r Biodiversity Monitoring


- and Assessment Projects in Peru
SponsoringInstitution Project
Conservation International and Birdlife Important Bird Areas (IBAs) o f the Tropical Andes
International
Conservation International Rapid Assessment Programs
FieldMuseum o f Natural History Rapid Biological Inventories in Cordillera Azul National Park and in
Yavari region (Loreto)
Universidad Nacional-La Molina Environmental monitoring inNational Protected Areas System:
Conservation Data Center, /Frankfurt Bahuaja Sonene National Park, Tambopata National Reserve,
Zoological Society/INRENA Amarakaeri Communal Reserve, ManuNational Park and Alto Punis
Reserved Zone
World Wildlife Fund National monitoring system for SINANPE
Conservation International Biological Assessment o f Tambopata Candamo Reserved Zone,
southeastern Peru
Conservation International Biological Assessment o f Cordillera del Condor Region in Peru and
Ecuador
Conservation International and Biological and Social Assessments o f the Cordillera de Vilcabamba,
Smithsonian Institution Peru
Conservation International Biological Assessment in Zona Reservada Tambopata Camdamo
(Madre de Dios and Puno)
Duke University Center for Tropical Alto Punis region (covering parts o f the Ucayali and Madre de Dios
Conservation
Universidad Nacional-La Molina Biodiversity loss in three coca-growing areas o f the Peruvian
Conservation Data Center and WWF Amazon
The Nature Conservancy (TNC) Conservation Action Plans; Biodiversity monitoring in Pacaya
Samiria National Reserve (Loreto) and Central Selva Compound (in
Yanachaga-Chemilltn National Park, San Matias-San Carlos
Protected Forest, and Yanesha Communal Reserve)
Peruvian Association for the P I M A Project -biological monitoring in Amazon
Conservation o f Nature (APECO)
Peruvian Amazon Research Institute B I O D A M Z Project in northern Peruvian Amazon
(IIAP) and Government o f Finland
lource: Assembled from data in Elgegren (: 105)

7.60 Many o f the areas o f high biological diversity in Peru lie within or proximate to the country's 61
natural protected areas. The Natural Protected Areas Law o f 1997 defines the purpose o f the country's
protected areas as to conserve biological diversity and their associated cultural, landscape, and scientific
values, as well as to secure their contribution to the sustainable development o f the country. Together, the

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various categories o f protected areas in Peru comprise 17.66 million hectares, representing 13.74% o f the
country’s total area (Table 7.15). Each category has a distinct objective and associated level o f protection,
the highest for National Parks and National and Historic Sanctuaries (for further details, see Pulgar-Vidal and
Calle, 2003). Most o f these areas are located in the M e n t e , with smaller areas in the Sierra, and to a lesser
extent, the Coast. These parks and protected areas represent a potential source o f future economic growth if
Peruvian protected area managers and private sector entrepreneurs are able to use these resources in
stimulating growth in Peru’s ecotourism industry.

7.61 Beginning in 1997, an effort has been made by INRENA, with technical assistance from the CDC,
WWF, and USAID, to assess the management capacity o f the Protected Areas System, SINANPE, using the
so-called Management Monitoring Matrix (M3) approach. This assessment has focused on management
criteria including registration o f the P A in the public r e g s t r y to avoidminimize land-tenure conflicts, the
establishment o f Protected Area Management Committees to secure open and transparent participation o f all
those with a stake in protecting the area, financial sustainability, the approval o f Master Plans to provide
management guidelines, and the approval o f Annual Work Plans. The M3 tool does not include monitoring
and evaluation o f the status o f biological diversity itself. The fact, however, remains that n o standardized
monitoring system i s in place in Peru, even in the protected areas system, unlike neighboring countries like
Colombia, to assess the status o f or changes in biological diversity.

7.62 In addition to its wild biodiversity, Peru i s also one o f the most ancient sites for species
domestication, dating to over 6,000 years ago. The country hosts a genetic diversity o f over 128 cultivated
species, including the highest global diversity o f potato varieties, one o f the four most important food crops
of the planet, along with wheat, rice, and maize. At least nine species o f domesticated potato are known with
almost 3,000 ecotypes and an estimated 150 wild species with high genetic value. (Peru’s potato production
had a farm-level value o f about $425 million in 2003).

7.63 The annual global market for biodiversity-derived products4omprising agricultural products,
functional foods, pharmaceuticals, biopharmaceuticals, herbal medicines and nutraceuticals, seeds and
personal care and cosmetic productehas recently been estimated at over US$230 billion @oca et al., 2004).
As noted above, estimates by Chambi (2002) and others suggest that there i s considerable economic value to
Peru’s biodiversity. If properly managed, the value o f both wild and ago-biodiversity could be translated into
a source o f increased national income and employment. In addition to conventional agriculture and growth o f
industries such as ecotourism, Peru has considerable potential for the improved commercial management o f
many types o f species o f fauna and flora. Roca et al. (2004) identify more than 40 sources o f wild and
cultivated biodiversity in Latin America with current or potential commercial use. In Peru, species that have
been identified for commercial potential include the alpaca and vicufia, brazil nuts, tropical fish, the
peccary (for meat and hide), orchids, natural colors derived from the cochanillu bug, medicinal plants
with international market demand such as “cat’s claw” (Uncaria tornentosa) and “sungre de grade'"
(Croton lechleri), and foods such as the vitamin C-rich “carnu carnu” (Mycaria dubia). Individually, these
species may not have the same commercial potential as potato or maize; however, together they represent a
prospective means for Peru to take better advantage o f i t s competitive advantage in biological diversity.

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Table 7.15. Peru's Protected Area System
I Protected Area (Date Established) I Area (ha) I Protected Area (Date Established) I Area (ha) I
National Parks (11) 7,812,667
Cutervo I 1961\ 2.500 I Yanachaca-Chemillen f 1986) 122.000

Manu (1973) I 1,7 16,295 Cordillera Azul(2001) 1,353,191


Huascaran (1975) 340,000 Otish (2003) 305,973

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Causes ox and Threats to, Biodiversity Conservation

7.64 Without doubt, deforestation i s a key driver o f biodiversity loss, since it deprives living species
o f their habitats. As indicated in the previous section, forest cover loss i s significant in Peru, amounting
to around 150,000 hectares annually. An interesting recent effort to link deforestation to biological
diversity loss i s represented by CDC's landscape analysis o f three coca-growing areas o f the Peruvian
Amazon, Huallaga, Pachitea-Aguaytia, and Apurimac (CDC, 2004). One o f the major findings o f the
study i s that, o f the 7.87 million hectares in the study area, 31.4% (roughly 2.47 million hectares) were
estimated to be o f "high conservation value" based on a set o f biodiversity and landscape criteria.

7.65 A recent study sponsored by C O N A M and the National Biological Diversity Commission (1998)
identifies three categories o f threats to biodiversity. The first category, conceptual threats, consists o f
misconceptions about biodiversity and lack o f knowledge and awareness about ecosystem functioning,
the role o f biodiversity, and i t s economic potential. The second category, political and economic threats,
consists o f policy gaps and failures such as perverse incentives for slash-and-burn cultivation in areas not
suitable for agriculture, lack o f policies to facilitate the preservation o f genetic resources, and economic
instability and widespread poverty. A third category, direct threats, consists o f human activities that can
lead to the degradation o f species habitat and/or to species extinction: migration to the Oriente;
deforestation; urban and industrial pollution; overfishing and overhunting; genetic erosion; road opening;
exploration and exploitation o f mineral and hydrocarbon resources; and the extinction o f native
populations and cultures, which can lead to loss o f traditional knowledge about biodiversity. These direct
threats also include large-scale projects such as Camisea and the Interoceanic Highway, o f which 1,100
lan i s being built in Peru, potentially disrupting landscapes, ecosystems, and conservation comdors.

Institutional and Policy FrameworP4

7.66 Biodiversity has long been recognized as having many o f the qualities o f a public good, such as
non-excludability and non-rivalrous in consumption. Markets have a tendency to underinvest in public
goods, and private sector control accordingly may be suboptimal, because o f the tendency to free-ride and
expect others to pay for the benefits provided, and because private provision i s often limited to immediate
capturable private benefits (FAO, 2002; Zilbennan, 2002). As explained above, even though there i s
great scope for greater private investment in and private capture o f the economic benefits rooted in Peru's
biodiversity, the public goods rationale and the need for Peru to comply with i t s international treaty
obligations, among other factors, provide justification for public sector investments in helping conserve
these diverse resources.

7.67 Peru has a comprehensive legal and policy framework governing biodiversity conservation and
management. This includes a national sectoral policy and programs to deal with the country's diverse
ecosystems. Likewise, Peru has a broad set o f public institutions having a biodiversity conservation
mandate (CONAM, INRENA, IMARPE, and INIA) as well as a large number o f local and international
NGOs working in biodiversity management. The central regulatory umbrella governing biological
diversity worldwide, including Peru, i s the 1992 Convention on Biological Diversity (CBD), which Peru
ratified in April 1993. In Peru, the response to the C B D was to create the National Biological Diversity
Commission (CONADIB). T h i s Commission has been fundamental in facilitating the implementation o f
the C B D and defining national positions and policies regarding biodiversity, notably through formulation
o f the National Biological Diversity Strategy (ENDB) that provides regulations, priorities, and actions to
operationalize the CBD's principles in Peru.

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T h i s section and the next draw in part ftom Shchez et al. (2005).

161
7.68 A recent report by the UN Development Program and CONAM (Sinchez et al., 2005) suggests
that CONADIB has a mixed record in galvanizing efforts regarding biodiversity conservation in Peru. A
first phase o f CONADIB's effort (1996-1998) was highly proactive and the passing o f the Conservation
and Sustainable Use o f Biological Diversity L a w (1997), the Protected Areas L a w (also 1997), the
approval o f the National Biological Diversity Strategy (ENDB) in 2001, and the creation o f thematic
working groups, such as those in agro-biodiversity, biotechnology, access to genetic resources, and
economic valuation o f biodiversity. In recent years, the efforts have been less visible but have focused on
consolidating national policies and negotiations in international forums regarding biodiversity, approval
o f regulations governing the operation o f the Conservation and Sustainable U s e o f Biologcal Diversity
and Protected Areas Laws, and approval o f the law protecting the biodiversity-related knowledge o f
indigenous populations (2002). Technical assistance from UNEP has helped strengthen CONADIB and
make i t s operation more efficient, though it i s still as weak entity for several reasons, including lack o f
financial support. Making CONADIB more effective will require greater political visibility, a strategic
plan with concrete and measurable targeted impacts, and additional fhding from the donor community.

7.69 C O N A M i s the national agency responsible for national policy and guidelines governing the
conservation and sustainable use o f biological diversity, and it i s the lead agency for administering the
ENDB. Its Biodiversity and Biosafety Directorate, established in 2003, focuses i t s work in three main
areas: (1) institutional coordination with other GoP Ministries, agencies and Regional Governments,
including implementing CONADIB; (2) sustainable use o f biodiversity, dealing with biotrade, agro-
biodiversity and access to genetic resources; and (3) biosafety, dealing with biotechnology and transgenic
organisms. Unlike INRENA or IMARPE (Peru's Oceanic Institute), C O N A M i s not an implementing
agency but acts largely in a coordinating role, conducts training programs and acts as an information
clearinghouse. I t s regional coordinating function rests on the Regional Environmental Commissions
(CARS), which in turn assist the Regional Governments in the design and implementation o f their
Regional Biodiversity Strategies, as mandated by the Decentralization Framework L a w o f 2003. The
Biodiversity and Biosafety Directorate i s a minimally staffed office (four people), which creates major
challenges in executing i t s wide mandate.

7.70 INRENA i s the primary implementing agency for biodiversity management in Peru, through i t s
Biodiversity Conservation Directorate. This office has primary responsibility for national programs that
assure Peru's compliance with three international conventions: the CDB, the Convention on International
Trade in Endangered Species (CITES) and the Convention o n Migratory Species. T h i s includes major
responsibility under ENDB for biodiversity monitoring, including monitoring Peru's mahogany export
quota, a politically sensitive task. The existing monitoring effort i s very modest; an inherent conflict in
moving aggressively toward a national system o f biodiversity monitoring i s that such a system could well
confirm the weaknesses o f current GoP policies and procedures in dealing with biodiversity conservation
and deforestation. The Directorate i s also active in the National Biotrade Commission (over which
C O N A M presides), in environmental education - important given the lack o f knowledge about
biodiversity and i t s importance - and in conservation training at the regional and provincial levels.

7.71 Numerous other institutions work on biodiversity conservation in Peru. Since 1992, the Peruvian
National Trust Fund for Parks and Protected Areas (PROFONANPE) has been managed by the private
sector to provide funding for Peru's main protected areas. By 2003, it had generated an estimated $38
million in assistance from the Peruvian government, national and international nongovernmental
organizations, the World Bank Global Environment Facility, and the United Nations Environment
Programme, in support o f protected area management in Peru (Global Environment Facility, 2003). The
Peruvian Amazon Research Institute (W)has an active program o f biodiversity research management
focusing on Peru's Amazon regon, including projects with commercial applications. The National
Agncultural Research Institute (INIA), with its four regional stations, has a small gene bank collection and
research effort. A number o f in situ and ex situ agro-biodiversity conservation efforts are underway in Peru,

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with involvement o f INIA, the International Potato Center (CIP) and several national universities, and with
funding fiom the GEF, the McKnight Foundation and the Swiss government, among others. These include
innovative projects such as the "Potato Park" project in southern Peru, developed with indigenous
communities and international donors; a CIP and INIA-led effort to restore native potato varieties in 35
villages in the Sierra; and the "Condor Route" network o f in situ Andean conservation sites planned to extend
from southern Venezuela to Bolivia.

7.72 Finally, efforts funded by the Global Environment Facility (GEF) on conservation and
biodiversity in Peru focus primarily on biodiversity conservation and protected area management through
public participation, particularly through enhancing the capability o f indigenous people to participate
actively in protected area management. By mid-2006, there were six active biodiversity projects funded
by the GEF through the United Nations Development Programme and the World Bank, totaling almost
US$33 million. In addition, the GEF also funds enabling activities for around US$500,000 on
biodiversity-related issues. There area also nine GEF-funded active climate change projects totaling over
US$27 million, and one POPS (persistent organic pollutants) project for US$500,000. Under the new
Resource Allocation Framework, Peru will greatly benefit from the GEF, and i s eligible to receive
roughly $30 million in grant funding for biodiversity, $5-10 million for climate change and adaptation,
plus additional GEF funds for land degradation, persistent organic pollutants, and international waters.

7.73 Having at least two major actors working toward biodiversity conservation fosters a lack o f
clarity about which has higher authority. T h i s in turn impedes communication and creates conflict with
other sectors o f the Government including relationships with other ministries. T h e recently approved
General Environmental L a w (2005) will help better define CONAM's role as the country's highest
environmental authority, but the problem will likely persist under the current structure. Even though
some o f the Regional Environmental Commissions (CONAM's regional branches) are quite active,
C O N A M has little field-level expertise and implementation capacity (Shnchez et al., 2005), which will
continue to hamper it. INRENA i s widely perceived as the agency that has the most hands-on experience
and i t s current leadership i s well respected. However, excessive bureaucracy, understaffing and a chronic
lack o f resources leave it difficult for INRENA to adequately fulfill i t s many mandated functions.

7.74 Even though Peru has a comprehensive policy and regulatory framework covering biodiversity,
the application o f this body o f regulations and policies leaves much to be desired. This i s in part because
jurisdictional and enforcement institutions are weak, chronically short o f resources, and traditionally too
dependent on individual initiative rather than institutional strength. CONADIB seems to have lost
momentum (Shnchez et al., 2005). This may be reversed by strengthening the strategic planning
capacities o f the agencies and institutions within CONADIB to establish baseline information and
tangible targets and goals. There are also overlaps and inconsistencies, which i s a common problem at the
regional level in Latin America. The problem may be greater in Peru than in other Andean countries
where a Ministry o f the Environment exists (Colombia, Ecuador, Venezuela; in Bolivia, the Ministry o f
Sustainable Development). T h i s effort has been complemented in the past by donor community
contributions, which have created numerous benefits but have fostered a project-based approach to
dealing with biodiversity, rather one built on strong institutions.

7.75 Perhaps inevitably, another limitation stemming from the current institutional configuration i s
difficulties in intra- and inter-institutional coordination. The government has a hghly sectoral approach
to biodiversity: INRENA deals with forests, C O N A M deals with biodiversity policy, IMARPE deals with
marine biodiversity, INIA deals with agro-biodiversity, and so on. International coordination can also be
difficult, such as, within INRENA, coordination between the National Protected Areas Superintendency
(IANP) and the Forest and Wildlife Superintendency (IFFS). Coordination i s often not a problem rooted
in lack o f willingness to coordinate, but in time constraints and shortage o f personnel. The multi-

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institutional framework also leads to duplication o f efforts across projects, and therefore a need for
coordination among donor agencies.

7.76 Despite Peru's enormous biological diversity, GoP efforts, and those o f donors, NGOs,
universities, and civil society, there i s n o comprehensive and consistent biodiversity monitoring system in
place in Peru. As reviewed above, many monitoring systems have been employed in one-off donor-
funded projects, but these efforts are typically intermittent, unsustained, and narrow in geographic scope.
Even in the Protected Areas system, there i s n o ongoing monitoring system. The Protected Areas
Superintendency (IANF') does not have an information specialist and has only one person handling
monitoring for the whole Protected Areas System. A 2004 report on the previously mentioned M 3 evaluation
o f the Protected Areas system found, for example, that only 28 o f 56 Protected Areas were registered in the
public registry as state-owned land; o f the 28 Management Committees, 18 had a Work Plan; only 4 PAShad
a financial sustainability plan; only 18 PAShad an approved Master Plan, o f which only 13 were used as a
management tool, and only three had a monitoring and evaluation plan. For the past three years, IANP has
focused on strengthening management capacity and achieving the Protected Areas Master Plan targets.
Information gathering and systematization has not been a priority, though.

7.77 Finally, there i s very limited capacity to properly manage biodiversity at the regional and local
levels. T h i s i s a critical constraint because, under Peru's decentralization laws (Nos. 27680 and 27783,
both in 2002) INRENA i s gradually devolving responsibility for the management o f forestry and wildlife
biodiversity to the regional governments, which are demanding a role and participation in an area which
they foresee as a future source o f economic growth. Several Departments (Loreto, Madre de Dios,
Ucayali, San Martin, Amazonas, Ica, and Junin) have already developed their biodiversity strategies as
provided for by law. However, the regional governments do not currently have the technically trained
staff or the resources to assume these responsibilities, which have a target date o f 2007. They reportedly
s t i l l frequently contact INRENA in Lima for guidance and support on key biodiversity management
issues. Overall, only about 0.15% o f the GoP budget i s currently allocated to dealing with the
environment and natural resources, including biodiversity (Shchez et al., 2005). The Departments which
are most advanced in their biodiversity management capacity include Ayacucho, Piura, Tumbes and
Loreto.

RecommendationsRegarding Biodiversity

7.78 Despite progress in complying with national commitments to international treaties such as the
CBD, there are severe constraints. The most challenging problem seems to be the lack o f integration and
consistency o f biodiversity management at the highest political level. Biodiversity, not to mention
environmental issues as a whole, i s not prioritized in PCM's agenda. Some ministries do not have a clear
view that, in being responsible for biodiversity, they are the stewards o f the nation's storehouse o f genes,
species, and ecosystems. I t may be unrealistic to think that Peru will soon approach the commitment o f a
country like Costa Rica, but the country can go much further in tahng advantage o f i t s unique
biodiversity resources, including in a commercial and developmental context. Important
recommendations for changes in policy, technical assistance and public investment include the following:

Policy

1. Strengthen institutional capacities o f key actors in biodiversity conservation both at the national and
regional levels. This long-term goal includes increasing staffing and budget at CONAM's
Biodiversity and Biosafety Directorate, INRENA's Directorate o f Biological Diversity Conservation
and Natural Protected Areas Superintendency, IMARPE, and the regional governments. T h i s
strengthened capacity i s especially needed in view o f the decentralization framework. In the

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specialized area o f biodiversity management, the central offices o f INRENA and C O N A M can be
expected to serve as national resources. However, there i s great need to build institutional capability
over the longer t e r m at the local and regional levels, since responsibilities are increasingly devolved
to these institutions.

2. Build on Peru’s “comuarative advantage” in biological diversity, including aao-biodiversity. Over


the longer term, Peru should make better use o f i t s strengths in agro-biodiversity and in developing
commercial uses o f i t s unique wild biodiversity. This should begin by building on current efforts,
such as those underway in institutions like the National Bio-Commerce Program implemented by the
National Commission for the Promotion o f Exports (PROMPEX) under CONAM’s leadership.
However, these efforts should be reinforced and given new focus and vision. Such efforts should also
be geared towards strengthening Peru’s capacity to access and manage the country’s genetic
resources, focusing in areas such as research, access, and intellectual property (Bernales, 2006).

3. Speed uu the process o f review and approval o f C O N A M roles and functions, which will clarify and
strengthen i t s Biodiversity and Biosafety Directorate. In view o f the National Biological Diversity
Strategy and Peru’s new Environmental L a w (2005), CONAM’s regional offices (CARs) may also
need strengthening in view o f the increasing importance o f decentralized efforts in biodiversity
management. These objectives can be accomplished in the short to medium run.

4. Refine coordination mechanisms among external donor agencies working on biodiversity, because o f
the important role o f these agencies. Improved mechanisms will help avoid duplication o f efforts,
improve information sharing, and promote interventions in areas that have received little external
support. Although this i s a long-term goal, it could have significant payoff, given the level o f donor
resources that have supported biodiversity conservation in Peru.

Technical Assistance

1. Strengthen GoP efforts to disseminate biological technical knowledge and training. T h i s should
include the regional governments, CARs and INRENA regional offices, as well as more specialized
opportunities for private sector participation, such as in agro-biodiversity and promising biotrade
opportunities. T h i s effort i s consistent with, and necessary to reinforce, the decentralization
framework.

2. Suuuort national efforts to value biological diversity and environmental services. A Payment for
Environmental Services working group has recently been formed with initial funding from GTZ. This
initiative should receive more attention in view o f decreasing fhding resources from the donor
community. This effort i s important, among reasons, in generating incentive-compatible solutions to
biodiversity and natural resource conservation, thus potentially reducing the reliance on central GoP
financing.

Investments

1. Increase resources (financial suuuort and technical assistance) to create an adeauate biodiversity
monitoring system. including aao-biodiversity, and to evaluate and assess progress o f i t s status in
Peru. Peru’s commitments under international treaties will not be fulfilled if n o consistent and reliable
data i s available regarding the state o f biological diversity, nor will the national vision and objectives
stated in the National Biological Diversity Strategy be achievable. A consistent, ongoing, long-term
national monitoring effort, using modern, science-based methodologies, i s needed to improve past
monitoring efforts, which have been inadequate, inconsistent, and which have generated non-
comparable results. In addition, it i s advisable to strengthen Peru’s Biodiversity Clearinghouse

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Mechanism, situated in CONAM. Information sharing i s vital in consolidating these efforts, as there
i s abundant information that has not been systematized.

Summary o f Policy Recommendations to Address


Soil Degradation, Forestry, and Biodiversity

Objective Recommended Short-Term Recommended Medium- and Long-


Actions Term Actions

Foster more efficient public 0 Conductlupdate new national Use updated information to
planning and private inventories o f (1) soil erosion improve planning o f public and
resource allocation through and (2) soil salinity (none private interventions in soil
improved information. completed since 1980s). salinization, water and irrigation
(Cost: l o w to moderate) use, land use planning, soil erosion
and soil conservation. (Cost: low)
Use water resources and 0 Revise the 1969, 1989, and Increase water use fees to cover
associated lands more 1990 Water Laws to authorize provision costs and generate more
efficiently. higher, broad-based fees for efficient water use and associated
water use. (Cost: low) land uses. (Cost: low)
0 End preferential treatment for
rice in water allocation in
Coastal irrigation projects.
(Cost: low)
~

Strengthen institutional Consider establishing a new Improve technical capacity o f


capacity to address water use independentWater Resources personnel working in soil
and soil conservation. Agency with a mandate for conservation, and improve staffing
integrated water use resources (INRENA,
management. (Cost: low) PRONAMACHCS, etc.). (Cost:
0 Refocus INRENA’s mandate moderate)
on soil conservation. (Cost: 0 Improve inter-institutional
low) coordination (PRONAMACHCS,
NGOs, donors) through
R E D N A M A C and other venues in
guiding investments in soil
conservation. (Cost: low)
I I

Allocate government and Conduct comprehensive 0 Use feasibility analysis, improved


external resources for soil feasibility analysis o f soil information, and estimated
conservation more efficiently. conservation investments. economic costs and returns to guide
(Cost: low) public investments in soil
conservation. (Cost: low)

166
Objective Recommended Short-Term Recommended Medium- and Long-
Actions Term Actions
11. Deforestation
Improve functioning of new 0 Suspend concessioning 0 Provide ongoing targeted technical
2000 Forestry Law, especially process until further reforms assistance to bidders and
regarding forest concessions. are made. (Cost: low) concession holders through
0 Improve mapping, zoning, INRENA, FONDEBOSQUE,
and forest inventories prior to NGOs, and other institutions to
further concessioning. (Cost: assure success o f forest
low) concessions. (Cost: moderate)
Create secondary market in 0 Provide more intensive ongoing
forest concessions. (Cost: institutional support (INRENA,
low) OSINFOR, etc.) for forest
concessioning process. (Cost:
Revise concessionaire criteria,
moderate to high)
especially higher capital
requirements, and promote Strengthen alliances with
bidding consortia. (Cost: low) international buyers, especially in
certified markets. (Cost:_low)
0 Assign greater weight to
economic vs. technical criteria Promote Reduced Impact Logging
in evaluating concessionaire (RIL) practices through increased
proposals. (Cost: low) technical assistance and incentives.
(Cost: low)
0 Improve stakeholder
involvement in forest Promote alternative sources o f
concessioning process revenue generation, including
through National Forestry increased harvest fees, transfer of
Roundtable, local Forest monitoring and enforcement to
Management Committees, etc. industry, etc. (Cost: low)
(Cost: low) 0 Expand national information
0 Strengthen the participation o f network and database to assist
indigenous populations in monitoring and enforcement o f
forestry management through Forestry Law. (Cost: l o w to
AIDESEP, COICAP, moderate)
INDEPA, etc. (Cost: low)
Strengthen institutions 0 Devote increased resources to Consider making OSINFOR an
involved in managing inspections and compliance; independent agency that reports to
forestry resources. monitoring and enforcement PCM. (Cost: low)
o f harvest and transport 0 Address land tenure and titling
authorizations; closer problems in forestry concessions
coordination with SUNAT, through better coordination with
OSINFOR, PETT, etc. (Cost: PETT, MEM, etc. (Cost: l o w to
moderate) moderate)
Clarify division o f
responsibilities between
INl7ENA and OSINFOR.
(Cost: low)

167
Objective Recommended Short-Term Recommended Medium- and Long-
Actions Term Actions
Support decentralization of Continue national support o f Promote greater role for Forest
forest management and Permanent Production Management Committees in local
associated institutions. Forests. (Cost: low) monitoring o f forest resources.
0 Suppodstrengthen devolution (Cost: l o w to moderate)
o f administrative and 0 Promote greater participation and
technical functions to stakeholder involvement in local
departments and regional forest management through
INRENA offices. (Cost: regional forestry roundtables, etc.
moderate) (Cost: low)
Increase fimding,.staffmg,
technical monitoring and
evaluation, and enforcement
capabilities at regional level.
(Cost: moderate to high)
Improve control of illegal 0 Devote greater resources to 0 Expand NRENA database to create
logging and trade. inspections, compliance, National Intelligence Center to
monitoring and enforcement support monitoring and
o f harvest and transport enforcement activities. (Cost: low)
authorizations; closer
coordination with SUNAT,
OSINFOR, PETT, etc. (Cost:
moderate)
Clarify role o f Multi-Sectoral
Commission to Control Illegal
Logging. (Cost: low)
111. Biodiversity Management
Provide improved 0 Increase resources-financial 0 Support national efforts to value
information to foster better support and technical biological diversity and
planning, including planning assistance-to create an environmental services. (Cost:
for compliance with adequate national biodiversity moderate)
international treaties and monitoring system, including
agreements, and for agro-biodiversity. (Cost:
allocation of private moderate)
resources. Strengthen CONAM's
Biodiversity Clearinghouse
Mechanism. (Cost: low)
Strengthen institutional 0 Clarify responsibilities o f 0 Refine coordination mechanisms
capacity in biodiversity different public institutions in among donor agencies. (Cost: low)
management. biodiversity management,
including CONAM,
INRENA, IMARPE, and
ministries. (Cost: low)
0 Speed up review and
clarification o f CONAM's
functions in biodiversity
management. (Cost: low)
0 Strengthen GoP efforts to
disseminate biological
technical knowledge and

168
Objective RecommendedShort-Term RecommendedMedium- and Long-
Actions Term Actions
training, especially at regional
level, given decentralization
framework. (Cost: moderate)
Foster greater economic 0 Register all protected areas as 0 Foster public-private linkages to
returns from Peru’s state-owned land in public promote Peru’s ecotourism sector.
“comparative advantage” in registries. (Cost: low) (Cost: low)
biological diversity, including 0 Assure that all Protected 0 Promote commercial uses o f wild
agro-biodiversity. Areas have Management biodiversity through PROMPEX,
Committees. (Cost: low) and foster private sector
For all Protected Areas, initiatives. (Cost: low)
develop: (1) Work Plan, (2) Provide adequate financial and
Financial Sustainability Plan, staffing resources to enable
(3) Master Plan, and (4) INRENA and Protected Areas to
Monitoring Plan, as provided cany out Plans #1-4, once they
in existing national legislation are developed. (Cost: moderate)
and regulations. (Cost: l o w to
moderate)

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CHAPTER 8

ENHANCING COMPETITIVENESS TO IMPROVE


DESIGN AND IMPLEMENTATION OF ENVIRONMENTAL POLICY

EIA is Peru’s main tool for environmental planning. However, its effectiveness is
undermined by the lack of a uniform perspective among government authorities
regarding its objectives and usefulness. Specijkally, there exists an ambiguity among
government authorities as to whether the purpose of E I A is environmental planning or
environmental management. This ambiguity has led to a situation in which neither
environmental planning nor environmental management is satisfactory. As a result,
environmental problems persist. There is a clear need for the Government to clarifi the
purpose of EIA. To make EIA an effective planning tool, it is crucial to recognize the
need to strengthen screening and scoping procedures and to improve mechanisms for
allowing representative participation by the public, including indigenous communities.
On the other hand, if EIA is to be used as an environmental management tool, it is
important to recognize EIA ’s limitations, particularly where market and policy failures
are strongly linked to environmental problems. Various mechanisms exist for controlling
environmental degradation, including (i) direct regulation by government or “command-
and-control ” measures; (ii) economic and market-based instruments; and (iii) other
approaches such as administrative procedures, legal actions, and formal negotiation.
Economic instruments and command and control measures are far more effective and
efJicientfor tackling Peru ’s priority environmental problems.

Introduction

8.1 A growing body o f regulations has been passed in response to Peru’s environmental
The main environmental policy instruments for environmental planning and
management include environmental assessment procedures (environmental impact assessments -
EIAs - and environmental compliance and management program - PAMAs) and environmental
emission standards (Eimites mhimos permisibles - LMps).

8.2 The private sector routinely expresses concerns that lack o f coordination and clarity in
the environmental approvals process leads t o uncertainty and affects investor confidence. T h i s
concern i s reflected in the environmental performance indexes o f the Global Competitiveness
Report 2005-2006. In these indexes, Peru placed in the bottom quarter among 117 countries
(Table 8.1). Poor management o f environmental problems lies at cross-purposes with the
achievement o f sustainable economic growth and the protection and improvement o f Peruvians’
welfare. A growing body o f evidence from the experience of businesses in the most competitive
c o u n ~ e s(Japan, Germany, Denmark, and Ireland) in the past two decades shows that
environmental performance i s directly related t o the quality o f the country’s business climate and
the competitiveness o f the businesses (Hammond, 2005; IADB, 2005).

8.3 Adopting strict and stable environmental requirements, and enforcing them in a clear and
transparent manner, has improved the business climate in the most competitive countries. The
2005-2006 Global Competitiveness Report indicates that complying with environmental
standards improves long-term competitiveness (Lopez-Claros et al., 2005). A country’s business

95 T h i s chapter was prepared by Ernesto Shchez-Triana, Miles Scott-Brown, Yewande Awe, and Juan David Quintero.
The chapter draws heavily on a background document prepared by Miles Scott-Brown (2005) for this study.

170
climate i s crucial to enabling businesses to operate optimally and increase their productivity.
Consequently, and particularly in an economy based on natural resources, the successful
incorporation o f environmental factors into a country’s competitiveness structure facilitates a
business climate attractive to foreign investors, orients agriculture and industrial sectors toward
higher value markets, reduces the pressure o f productive sectors on the natural resources base and
offers new business opportunities in global markets (Lopez-Claros et al., 2005; Porter, 2005).

8.4 Consistent with the above, experience from the most competitive developing countries,
such as Malaysia and South Africa, shows that environmental quality i s a k e y factor that affects
the growth and competitiveness o f important economic sectors. In this context, failure to
adequately address or respond t o pollution problems undermines the country’s growth potential
and i t s business sectors’ competitiveness. In the same vein, failure to reduce potential health risks
to the public from exposure t o hazardous wastes and substances has detrimental implications for
the population’s health and productivity.

8.5 Therefore, Peru has a dire need t o enhance the efficiency and transparency o f
environmental legislation and increase enforcement capacity. Increasing the efficiency and
effectiveness of an environmental regulatory framework, particularly o f the EIA, P A M A s and
L M P s system, i s urgently needed in Peru.

Table 8.1. Peru: Environment and Competitiveness (Total o f 117 Countries)


I
Position of
I Position Position
Position
World Leader in
Indicator of
o f Peru Leader Latin
Of Colombia
America
Stringency o f environmental
70 35 41 Germany Brazil (25)
regulations
Clarity and stability o f environmental
78 38 50 Denmark Chile (38)
regulations
Protection o f ecosystems by business 83 23 45 Iceland Chile (23)
Extent o f government-mandated
87 45 58 Denmark Panama (44)
environmental reporting
Effects o f compliance on business 88 37 78 Denmark Chile (37)
Prevalence o f corporate environmental
88 36 59 Denmark Brazil (32)
reporting
Prioritization o f energy efficiency 60 30 44 Denmark Brazil (25)
Importance o f environment in business
96 67 66 Japan Panama (28)
planning

8.6 While EIA i s s t i l l a relatively n e w process in Peru, it i s being applied t o a variety o f


sectors and investment projects. Previous studies have discussed ways in which environmental
licensing procedures operate as a barrier to development, particularly in dynamic and growing
sectors such as energy and mining (IADB, 1997,2001; W o r l d Bank, 2000,2005e; Garcia, 2005).
M u c h less i s known, however, about the influence o f EIA and environmental licensing on Peru’s
environmental quality and the effectiveness and efficiency o f EIA tools. Relative t o existing and
proposed legislation and international EIA standards, there has been little comparative review o f
EIA practices across all sectors. There also has been little comparative analysis o f EIA
effectiveness, particularly with respect to monitoring, follow-up, and compliance with EIA
commitments. To address these gaps, this chapter analyzes the existing environmental policy
framework for sectoral environmental management in Peru, particularly its environmental impact
assessment system. Following this introduction, section two o f this chapter describes the

171
evolution o f Peru’s environmental impact assessment system. Section three discusses the
effectiveness o f the E M system as the main environmental planning tool in Peru. Section four
analyzes the effectiveness o f EIA for environmental management in Peru. Section five analyzes
the application o f E M t o three projects in the mining, electricity, and o i l sectors. Section six
discusses the limitations o f EM. Finally, section seven presents conclusions and discusses
options to improve the design and implementation o f environmental assessment.

Peru’s EnvironmentalImpact Assessment System

8.7 The institutional and legal framework governing environmental assessment and licensing
in Peru has evolved from 1990 when the Code o f the Environment and Natural Resources
established it as an environmental planning tool (CONAM, 1999). A series o f laws and
regulations constitute Peru’s environmental impact assessment (Table 8.2). Legislative Decree
757 establishes that the legal authority for environmental approvals and compliance i s regulated
at the ministerial level. Legislative Decree 757 also identifies the ministry responsible for specific
industrial and other regulated activities. This has been accomplished through the enactment of
various sectoral regulations and guidelines. Each ministry i s responsible for defining the EIA
process and the terms o f reference for the content o f environmental impact studies.

Table 8.2. Peruvian Environmental Legislation Pertinent to


Environmental Impact Assessment

Law Reievance to EIA


Code o f the Environment and First law to establish need for EIA.
Natural Resources Legislative Indicated l i s t o f activities subject t o EIA.
Decree No. 613 o f 1990 (CAM) Provision superseded by L a w 757.
Framework L a w for Increasing Delegated responsibility for EL4 and environmental management t o
Private Investment. Legislative sectoral authorities (ministries).
Decree No. 757 o f 1991
L a w for Environmental Impact Established C O N A M ’ s oversight role in EIA process, but Ministries
Assessment o f Projects and responsible for EIA.
Activities. L a w N o . 26786 o f 1997
L a w o f the National System for Established a true “one-window’’ system for EIA.
Environmental Impact Assessment. Established u n i f o r m procedures t o identify requirements, steps, and
L a w 27446 o f 2001 scope o f EIA.
Established three categories f o r EM:
I.Environmental Impact Declaration (DIA)
11. Semi-detailed EIA
111. Detailed EIA
Established mechanisms for public participation.
A s o f December 2005, this L a w was not in force, as regulations
have not been enacted.
General L a w o f the Environment. Article 24 states a l l project, plans, programs and policies that could
L a w N o . 2861 1 o f 2005 cause significant environmental impacts are subject t o S E I A
requirements.

8.8 Environmental assessment systems are not uniform across all ministries in Peru. The
ministry with the strongest EIA system i s the Ministry o f Energy and Mines, followed by the
Ministries o f Transport and Communications and the Ministry o f Production. INRENA has a dual
mandate in the EIA process. I t acts as a review agency t o other ministies where natural resources
may be affected and i s the sectoral authority for the EIA review o f agricultural projects. The

172
devolution o f responsibility t o the ministerial level has created a diversity o f approaches to EIA
from a legal, organizational, and institutional perspective. A variety o f regulations specify
different types o f EIA documents, terms o f reference for EIA scope and content, timing for
review and approval, and means for public consultation. While the proposed regulations to the
SEIA attempt t o unify the EL4 process with respect to categorization, content, process, and
timing, they have yet to be promulgated. A s a result, Peru currently lacks a unified approach to
EIA, and each ministry conducts EIA according to i t s specific regulations and institutional
practices. EIA practices differ significantly among ministries. Furthermore, practices differ within
ministries, as within the Ministries o f Energy and Mines and within the Ministry o f Production.
Furthermore, not all Peruvian ministries conduct EIA o f projects and activities.

8.9 The current ministries that undertake EIA in Peru include Energy and Mines, Production,
Transport and Communications, and Agriculture. The status, as o f December 2005, o f EIA in
other government ministries i s described below:

Foreign trade and tourism - Currently, Tourism does not have a legal framework for
EIA. The sector has been worlung with C O N A M to define an EIA guide for the tourism
sector. Some EIAs have been done o f tourism projects, mostly o n ecotourism concessions
offered by the Government. The Ministry o f Foreign Trade and Tourism recently
approved the tourism sector’s environmental policy. CONAM will lead the preparation of
a Strategic Environmental Assessment o f the Strategic Plan o f the Tourism Sector,
scheduled to begin in early 2007 (Bernales, 2006).
Communications (done for Transport) - Investment projects in this sub-sector are
associated almost exclusively with the installation o f transmission towers and cable. An
environmental protection regulation requires technical environmental studies similar in
format and content to an Environmental Impact Declaration (DIA).
Defense - No legal framework for EIA i s established. The draft SEIA regulations include
a series o f projects that will require EIA in the future.
Housing, Construction and Sanitation - In 2006, the Environmental Directorate o f the
Ministry will develop EIA regulations for the sector. Consultants have been hired to
prepare a proposal for environmental management.

8.10 At the regional and local level, EIA i s mostly nonexistent. Regional Authorities have
limited EIA capacity and focus their attention o n construction and operating licenses, which
require the approval o f D I A s or EIAs in order t o be made effective. In practice, little i s done
regarding this.96

8.1 1 Overall, the EL4 capacity within Peruvian government ministries i s very weak. Staff i s
largely inexperienced in environmental impact analysis, and continuity i s affected by significant
staff turnover and significant lack o f financial resources. The review of environmental impact
assessment studies focuses more on technical aspects, rather than on issues o f impact analysis and
environmental management. Staff has little experience in the EL4 approval, monitoring, and
follow-up process, and EIA training within ministries i s generally laclung. Finally, there i s a void
between the E N process and land-use zoning, and pollution control.

8.12 L a w No. 27446, passed in April 2001, establishes a new environmental assessment
process, the National System for Environmental Impact Assessment (SEIA). T h i s n e w process

96
An exception i s the Municipality o f Lima, which has undertaken EIAs, but only in the historic center o f the city.

173
provides a one-window system for environmental impact assessment and establishes a process for
environmental approvals. L a w N o . 27446 and its regulations have yet to come into force.

8.13 The l a w regarding the National System for Environmental Impact Assessment, L a w
27446, establishes several objectives for Peru’s EIA system. On one side o f the spectrum, the
L a w adopts the EIA goal o f the first EIA system enacted in the United States in 1969 (NEPA,
1969). This approach views EIA as a planning tool to open decision making to public scrutiny
and provide citizens the opportunity t o better understand an investment project’s impacts and
alternatives (NEPA, 1969; Ortolano, 1998). This goal can be attained by including regulations
that specify clear procedures for EIA screening, public participation, scoping, analysis o f
alternatives, information disclosure, and accountability. On the other side o f the spectrum, this
l a w also allows for the design o f an EIA system that i s the basis for an environmental protection
statute. In this case, a portfolio o f environmental regulations might be designed and implemented
t o include regulations for (i)land-use zoning; (ii)pollution control; (iii)conservation o f
biodiversity; (iv) management o f forest, water and other natural resources and (v) technical
environmental specifications for sectoral environmental management. In this latter case, the EL4
system would include requirements for the design o f environmental management plans based on
detailed mitigation measures.

8.14 Currently, at a conceptual level, clear conflicts exist with respect t o normative
understanding o f the EIA in Peru. At the project level, different stakeholders (public and private)
in the development-assessment process have very different expectations for the EIA process. EIA
i s viewed by most as an information-gathering exercise, by environmentalists as environmental
advocacy, by academics as a mechanism for integrated analysis, and by the private sector as a
compliance tool, a risk management (safeguarding) framework, a mechanism for public
deliberation and an awareness-raising instrument. According to the draft regulation for the
Peruvian National System o f Environmental Impact Assessment (SEIA), EIA i s defined as:

The orderly, coherent and reproducible set o f analyses for the adoption of
decisions and measures that permit the project proponent, government authorities
and c i v i l society to understand in an integral manner, at the earliest stage
possible, the potential positive and negative impacts generated by the Project
proposal, as well as the Environmental Management Strategy to be adopted,
following approval o f the environmental impact assessment, t o prevent, control,
mitigate, recuperate or compensate those negative impacts, while promoting the
positives. (CONAM, 2005:43)”

8.15 This definition incorporates the different objectives o f EIA (NEPA, 1969; IAIA, 1999),
including the following:

0 T o open up decision malung to public scrutiny by providing citizens the opportunity t o


better understand an investment project’s alternatives and impacts
0 T o ensure that environmental considerations are explicitly addressed and incorporated
into the decision-malung process o f projects
0 T o anticipate and avoid, minimize or offset the adverse significant biophysical, social
and other relevant effects o f development proposals
0 T o protect the productivity and capacity o f natural systems and the ecologcal processes
that maintain their fimctions

97 Translated by Scott-Brown (2005). Page 43: Reglamento de la ley delsistema nacional de evaluacidn ambiental.

174
T o promote development that i s sustainable and optimizes resource use and
management opportunities

8.16 Delays in issuing SEIA regulations have contributed to confusing objectives for Peru’s
current EIA systems. There i s inconsistency in the approach, content, timing, and requirements o f
the EIA legal and regulatory process developed by sectoral ministries to open up governmental
decision making to public scrutiny. This inconsistency i s blatant in EL4 procedural components
such as (i) timing o f public consultation procedures from the onset o f the project through
approval and implementation; (ii) mechanisms for incorporating the results o f public consultation
into the decision-malung process; (iii) public disclosure o f project information and accessibility
o f information (e.g., location and language); and (iv) feedback to participants o f the results o f the
consultative process. At the other end o f the spectrum, EIA has become a de facto substitute for
pollution-control regulations and effective land-use planning, but should instead form part o f the
land-use planning process. EIA goals associated with avoiding, minimizing or mitigating
environmental impacts to third parties could only be attained with the design and implementation
o f regulations for (i) land-use zoning; (ii)
pollution control; (iii)conservation o f biodiversity; (iv)
management o f forest, water, and other natural resources; and (v) technical environmental
specifications for sectoral environmental management.

Environmental Assessment as a Planning Tool

8.17 An analysis o f EIA practices in the Ministries o f Energy and Mines, Transport, and
Agriculture, shows that the lack o f a consistent and efficient screening process has led to the
completion o f an excessive number o f unnecessary EIAs. T h e resources o f environmental units in
these ministries are mostly spent on reviewing reports. The analysis also shows significant
differences in (1) screening, (2) scoping, (3) evaluation criteria, (4) public consultation, (5) timing
o f EIA approval among the ministries, (6) monitoring, and (7) follow-up procedures (Table 8.3).

Screening

8.18 The purpose o f screening i s “to determine whether or not a proposal should be subject to
EIA and, i f so, at what level o f detail” (IAIA, 2005).98 In Peru, the responsible ministerial
authority determines screening o f projects and activities; consequently, screening i s not consistent
between ministries and sectors. This leads to an overall lack o f clarity about assessing the
significance o f project impacts. In some cases, projects with significant impacts are not subject to
EIA. A case in point in the transport sector i s the construction o f the Interoceanic Highway,
launched in 2005, which will complete a connection to Brazil and provide a direct commercial
link between Peru’s Pacific ports and the Atlantic Ocean. In other cases, many projects are
subject to EIA, but this i s often unnecessary, since preventing or mitigating project impacts could
be addressed through technical environmental specifications, environmental management plans,
land-use zoning bylaws, or a pollution-control regulation.

8.19 T o address this deficiency, Article 4 o f the L a w o f the National System o f Environmental
Impact Assessment (Law 27446) aims to assess project proposals, which are assigned to one o f
three categories, based on their environmental risk:

Category I:
Environmental Impact Declaration - n o significant negative impacts expected

98
See www.iaia.org for description o f best EIA practices.

175
Category 11: Semi-detailed Environmental Impact Assessment (EIA-sd) - Projects that
could result in moderate impacts that can be minimized through mitigation measures

Category HI: Detailed Impact Assessment - projects whose characteristics and location
could result in significant negative quantitative or qualitative effects requiring a detailed
analysis o f project impacts and the development of environmental mitigation strategies
(EIA-d)

8.20 Contents o f the EIA for Categories I1 and I I


Iare specified in Annexes o f the proposed
regulation o f the L a w 27446. Since neither the SEIA l a w nor the regulations are in force,
screening and focus o f EIA scrutiny in Peru are highly inconsistent and ineffective.

176
Scoping

8.21 The purpose o f scoping in EIA i s “to identify the issues and impacts that are likely to be
important and t o establish terms o f reference for EIA” ( M A , 2005).99The legislation governing
the Peruvian EIA process does not include a formal requirement for the scoping o f issues; the
EIA terms o f reference for proposed projects within different industrial sectors are defined by
the responsible ministerial authority. Generic EIA terms o f reference are available for the
mining, o i l and gas, electrical, agricultural, and industrial sectors. Within the various EIA terms
o f reference examined as part o f this review, only those o f the Sub-directorate o f Hydrocarbons
contain any reference to scoping. Even then, there i s little elaboration o n methods for scoping o f
both environmental and social issues. Similarly, in most EIA processes, public participation i s
absent in the scoping for identifylng key issues for analysis.

8.22 There are significant differences in the treatment o f k e y components o f what i s


considered best practice for EIA. These components include (i) EIA scoping based o n public
consultation at the earliest stage o f the project to help define major environmental and social
issues; (ii) determination o f spatial and temporal boundaries; (iii) a consistent process for
analyzing alternatives; (iv) data collection consistent with the scoping process and identification
o f data gaps; (v) determination, analysis and prediction of impacts, including impact
significance and quantification o f impacts, where possible; (vi) consideration o f cumulative
effects, including suggested procedures for their determination and assessment; (vii) consistency
in content and scope o f environmental management plans in relation to predicted impacts; (viii)
detailed monitoring and follow-up plans t o confirm the effectiveness o f project mitigation
measures and the accuracy o f impact predictions; (ix) consideration o f all project phases
(lifecycle approach), including decommissioning and abandonment; and (x) public participation
in governmental decision malung.

8.23 The E M terms o f references reviewed for t h i s study do not refer explicitIy to the
establishment o f spatial, temporal, techmcal, and administrative boundaries at the onset o f the
EIA scoping process (Beanlands and Duinker, 1983). This l i m i t s the definition o f EIA scope
primarily to projects’ direct impacts, often with the result that regional and induced impacts
with more significant and widespread consequences are not addressed.

8.24 An unbiased analysis o f alternatives i s a critical part o f EIA and should be done early in
the planning stage before project-design decisions are taken. Analysis o f alternatives i s
mentioned in some terms o f reference (e.g., hydrocarbon sector), but the process i s not fully
described. Ideally, the analysis o f alternatives should be presented as a stand-alone chapter and
used as part o f project justification.

8.25 A s o f December 2005, Peru’s EIA process neither explicitly nor effectively addresses
the assessment o f cumulative effects from a l l other past, present, and pending developments
associated with the proposed project’s impacts. The existing EL4 TORS for each sector do not
explicitly refer t o h o w such an assessment should b e considered and conducted (Hegmann et al.,
1999).

8.26 In Peru, EIA terms o f reference contain information o n what impacts should be
assessed, but lack specific details regarding h o w impacts should be assessed and, more
importantly, h o w their significance should be determined. To b e an effective decision-makmg
tool, the EIA should determine the importance o f environmental and social impacts, based on
information collected for a baseline and considering the effectiveness o f mitigation methods t o
remove or reduce impacts to an “acceptable” level.

99
See www.iaia.org for description o f best EIA practices.

178
8.27 To be effective, EIA terms o f reference should consider the following in the assessment
o f project impacts:

(i)Impacts should be quantified as much as possible, based on the best information


available to the EIA consultant at the time o f preparation.

(ii) The determination o f impacts should be defensible, in that it involves a clear and
transparent process whose adequacy can be independently verified by the public or
third-party reviewers.

8.28 A number o f procedures, models, and matrices are available for the determination o f
impacts. However, at a minimum, the following variables should be referenced: magnitude,
scale and extent, duration, frequency, uncertainty and scientific probability. Only the TOR for
hydrocarbons o f the Ministry o f Energy and Mines makes mention o f these variables. Other
TORSshould consider their use.

8.29 With respect to the quality o f EIAs in Peru, the focus o f environmental assessment i s
geared toward approval o f the project EIA, rather than toward ensuring long-term
environmental management and sustainability (De l a Puente, 2005).’00 Scoping o f EIAs without
public participation correlates with the low quality o f EIAs. Environmental Impact Assessment
studies in Peru are a largely descriptive exercise with an “academic” focus on baseline data
collection. Lesser emphasis i s gven to the determination, prediction, and analysis o f project
impacts. There i s no formal requirement to assess the cumulative effects o f single projects, nor
an established methodology.

8.30 EIA preparation i s the responsibility o f the project proponent. According to Peruvian
law, only approved consultants or institutions can prepare EIAs within each sector. With the
exception o f the Vice-Ministry o f Fish Production, all Ministries surveyed maintain consultant
registries and a qualification process for completing environmental impact assessments. The
maintenance o f these consultant registries i s largely a bureaucratic exercise; in practice, it does
little to improve the standards and quality o f EIAs or to ensure the competence o f EL4
practitioners. Moreover, the registries are subject to lack o f transparency with regard to the
contracts they award.

8.31 As i s common worldwide, the cost o f EIA preparation in Peru i s borne by the project
proponent. There are no published standards or guidelines as to what EIA should cost in Peru;
the wealth o f the sector often dictates the cost o f EIA preparation. Typically, in Peru, EIAs in
the oil and gas sector are the most costly and elaborated, followed by those in the mining,
electrical and transport sectors. EIAs in sectors that have low economic returns, such as the fish-
processing sector, are not highly elaborate and are done at low cost. Large international
consulting companies therefore focus their efforts on those sectors with the highest return and
number o f projects, namely the mining and oil and gas sectors. Mining EIAs dominate in
number, as there are few large oil and gas projects currently under development in Peru (Furst,
2005).’0’

Public Participation

8.32 “Public involvement” i s the term used for a spectrum o f approaches that can help
mitigate misunderstandings or disagreements with stakeholders. I t gives stakeholders the
opportunity to participate in, and possibly have increasing levels o f influence over, business
activities that may affect them (Canadian Association o f Petroleum Producers, 2003). Public

100
In a review o f EIA for mining and hydrocarbon projects in Peru, de la Puente (2005) states that EL4 i s an
administrative procedure for obtaining environmental approval rather than a tool for environmental management.
lo’Personal communication to Miles Scott-Brown b y Dr. Thomas Furst. environmental scientist. Vector Peru S.A.C.,
Lima, Peru.

179
participation in the EIA process has been initiated in Peru, and both formal and informal
processes are in operation. Although most ministries have guidelines for public participation,
there i s no standardized public consultation process across the anticipated life o f a project.
While initiated early in some cases, public participation i s usually conducted only until the time
o f the public hearing, which i s usually held within 30 days o f an approval decision. Consultative
processes and mechanisms vary substantially between ministries.

8.33 Public participation in the EIA process in Peru i s largely informative in nature: to
inform the public about a coming project and i t s potential impacts and management, and to
inform the public about i t s legal rights. Formal public hearings are geared more towards
dissemination o f project information than to providing a mechanism for public comment and
input to enter the decision-making process and affect the outcome o f approval decisions. As
stated recently by Manuel Pulgar-Vidal, “...public participation implies, among other rights,
involvement at the true level o f the decision-making process, to have the right to reject a project,
to participate in an effective manner in the benefits arising from the project and to demand from
government objectiveness and representation in project decisions.. .” (Brunke, 2005). Holden et
al. (2005) comment on the shortcomings o f the public participation process resulting from most
consultation being conducted in Lima and the infrequent involvement o f the affected
community.

8.34 Lack o f consistency in the approach to, and scope of, public participation in Peru has
made it difficult or impossible for the opinions o f indigenous people to be taken into account in
the EIA process. At the recent ECODIALOGO held in Iquitos in February 2006, indigenous
people from the Peruvian Amazon expressed opinions. Their viewpoints conveyed that
indigenous people see the development o f projects in the Amazon, such as infrastructure
expansion, as infringingupon their habitat and threatening their home and source o f livelihood,
since clear regulations providing for their protection do not exist.”’

Monitoring and Follow-Up

8.35 EIA follow-up i s defined as “the monitoring and evaluation o f the impacts o f a project
or plan.. .for management of, and communication about, the environmental performance o f that
project or plan.. ..”Io3Recently, academic groups have proposed a shift in EIA follow-up and
monitoring from monitoring and evaluating impact predictions towards establishing l i n k s with
environmental management, sustainability assurance, and communication with project-affected
stakeholders.IO4

8.36 As in most countries with EIA systems, Peru’s EIA follow-up and monitoring process i s
poorly developed and largely ineffe~tive.”~The responsible authority at the m i n i s t r y level
grants approval o f the environmental impact assessment study. However, the responsible
authority i s not necessarily accountable for the supervision and compliance o f the project. T h i s
responsibility i s turned over to another agency (either within the ministry or independent o f it)
that i s answerable for monitoring, compliance, and enforcement. Within the Vice-Ministry o f
Energy, this responsibility i s assumed by OSMERG, a separate organization responsible to the

lo* Opinions expressed by participants from AIDESEP, CONAIE, and CIDOB at the ECODIALOGO held in
February 2006.
103
Morrison-Saunders, A. and J. Arts. 2004 (Eds.) Introduction to EM follow-up. pp. 1-21. In: Assessing Impact:
Handbook of EIA and SEA Follow-up. London: Earthscan.
Momson-Saunders, A. and J. Arts. 2005. Editorial: Learning from experience: emerging trends in environmental
i m act assessment follow-up. Impact Assessment and Project Appraisal. Vol. 23 (3):170-174.
‘“The official word in Spanish isfiscalizacidn, which has no direct translation in English. “Compliance monitoring
and enforcement” i s the closest translation available. Fiscalizacidn i s more concerned with legal and financial aspects
o f compliance than follow-up o f environmental and social commitments contained within the EL4 and its related
environmental management plan.

180
Presidency o f the Council o f Ministries. Within the Vice-Ministry o f Mines, Ministry o f
Transport and Communication and Agculture, the monitoring function i s assumed by another
agency within the same ministry.

8.37 Compliance monitoring i s largely concerned with administrative procedures, and far
less with ensuring that commitments made in the E M are upheld. In addition, financial
constraints often impede effective compliance monitoring in the field. Finally, monitoring
reports are not available to the public for review, and the public has no role in the EL4 follow-
up process.

8.38 The Peruvian E M system currently does three kinds offiscalizacidn:


0 Completed within the Ministry itself, e.g., Compliance Monitoring Directorate,
General Directorate o f MiningIM
0 Completed by independent government agency - e.g., OSINERG, which reports
to the Council o f Ministers
Completed by a third-partner private-sector consulting company that i s officially
registered for this type o f work within the specific ministry, e.g., MTC

8.39 At the time o f E M preparation, only preliminary engineering details are usually
available. Consequently, the environmental management plans presented in EIA are largely
conceptual and are intended as a guide to how they w i l l be implemented once the detailed
engineering design i s finalized. The compliance-monitoring entity i s directed by legal
requirements that are more concerned with formal compliance than with the actual
commitments made in the EM. The overall result i s a weakened and largely ineffective E M
follow-up process.

8.40 A number o f other observations and concerns exist about how compliance monitoring
Cfiscalizacidn) i s actually implemented in the field:
Random inspections cannot be made unless there i s a fatal accident or emergency
situation (CED, 2002; IADB, 2002).
Since the compliance-monitoring agency or consultant i s not based permanently
in the field, but rather visits the project o n a scheduled basis, there are concerns
about the number o f visits and the level o f detail possible, compared to a full-
time compliance-monitoring presence.
Although companies are registered to conduct compliance monitoring and
guidelines exist for some ministries, there are concerns about companies’
qualifications and the budget available for monitoring compared t o EIA
preparation.
There are questions about the technical competence o f third-party companies and
h o w they are contracted.
There are questions as to h o w the compliance-monitoring budgets are determined
relative to compliance needs.
The focus o f compliance monitoring i s aimed more at financial and legal
compliance than o n the actual implementation o f EIA commitments.
There are concerns about the capacity to monitor discharges and evaluate actual
compliance.
There are concerns about penalties and the implementation o f fines.’07

IO6 Direction General de Mineria - Direccibnde Fiscalizacibn.


IO7 According to a September 25, 2005, article in the Peruvian newspaper, El Comercio, OSINERG fined 17
petroleum companies in 2005 for environmentalinfractions, none of which has been paid.

181
8.41 Realizing the complexities associated with the follow-up and monitoring o f complex
mega-projects, the Peruvian Government established the Inter-institutional Technical
Coordinating Group (GTCI) for the Camisea Gas Project. GTCI was established under D.S. No.
120-2002-PCM to coordinate and strengthen the supervision, follow-up, and compliance
monitoring of environmental and social aspects arising from execution o f the Camisea Gas
Project .

Analysis of Case Studies

8.42 T o support the findings o f t h i s review, three EIAs, considered by governmental officers
as best practice, were reviewed as case studies to assess the EIA preparation, review, and
approval process against established best international EIA practice. Case studies were selected
from the mining, electricity and o i l and gas sectors (Tables 4.4 - 4.6). The mining project i s the
Antamina Copper-Zinc Mine located in the Department o f Ancash. Ths project has three
components: an open-pit mine; processing facilities and infrastructure (port, pipeline, roads, and
power transmission). The Kallpa Project involves the construction o f a 380 M W thermal
generation plant in the district o f Chilca, in the Lima Department. The plant will consist o f two
190 MW turbines and a 220V electrical substation. The Lote IX project involves the drilling o f
two development o i l wells in Lote IX, Piura.

Case Study I : Antamina

8.43 The following i s an analysis o f the Antamina Mine operated by Compaiiia Minera
Antamina S.A. (CMA).
Table 8.4. Case Study Analysis: Antamina Mine
_I_ "
l.

Analysis

Antamina i s the world's third largest mine and the leading combined copper-zinc
mine; it has a capital cost of US$2.3 billion. I t i s located in the Department of
Ancash in the Peruvian Andes, approximately473 km north o f Lima. The project
Project Description consists of three components: an open-pit mine; processingfacilities and
infrastructure(port, pipeline, roads, and power transmission). The mine began
production in 2001 and has an expected operating l i f e of 20 years.

March 1998, EIA submitted for approval


April 1998, public hearing (Lima) took place
May 1998, MEM and INRENA presented observations to the EIA
June 1998, CMA responded to all the observations
July 1998, CMA filed the Road Addendum
July 15, 1998, EIA approved
Timeline of EIA January 1999, Concentrate Pipeline EIA Addendum submitted for approval
Activities
January 1999, public meetings in Huallanca, Chiquian, Chavin, San Marcos,
Huaraz, Aquia, Chasquitambo, and Huarmey, and a Public Hearing (Lima) took
place
February 1999, INRENA presented observations
March 1999, MEM presented observations
March 1999, CMA answered all observations
March 1999, MEM approved addendum

182
_.
..-.. .. --

EIA Coniponent

According t o regulations o f the Ministry o f Energy and Mines, Environmental


Screening Issues, Mining, an EIA was required

Scoping o f issues was done using a simplified failure modes and effects analysis
Scoping (FMEA) and workshop. Workshop consisted o f experts only and did not involve the
public or affected stakeholders.

In October 1996, CMA retained Klohn Crippen SVS SA. (KC-SVS) t o prepare an
Environmental Impact Study (EIA) for the Antamina Project. The EIA was filed
with MEM in March 1998. Addendums were submitted for a new access road
(1998) and concentrate pipeline (1999).
EIA Preparation
The EIA was prepared considering Peruvian Government EIA requirements, CMA
environmental and socioeconomic policies, and World Bank guidelines developed
for mining projects.

EIA approach, for the most part, consistent with World Bank standards and involved
a three-part process: Issue scoping, impact assessment analysis, implementation.
Detailed assessment o f project boundaries and impacts was done using a matrix
approach as either significant or non-significant. Variables considered included
EIA Content magnitude, duration, geographical extent, and probable frequency o f occurrence o f
expected interactions. N o analysis o f cumulative or regional effects. N o formal
alternatives analysis including impact evaluation presented.
An analysis o f alternatives for the concentrate transportation route was completed.

The EIA refers t o an analysis o f alternatives, but no formal analysis appears in the
Analysis o f EIA document. An analysis o f alternatives consistent with the requirements o f 0.P
Alternatives 4.01 Environmental Assessment was not done.

Environmental: impacts on surface water quality, loss o f habitat, heavy metal


release, local impacts on air quality, reclamation, and long-term liability issues
associated with closure, impacts on cultural resources.
Major Impacts Socioeconomic: resettlement, immigration, increased housing demand. There are
anticipated improvements in educational and health facilities, increased employment
opportunities, new housing development and improved infrastructure and social
services.

Peruvian legislation in force in 1998 provided that MEM and INRENA were
EL4 Evaluation involved in EIA approval. I t i s likely that, today, interventions o f other ministries
and Decision such as M T C would be involved.

183
k c o r d i n g to the EIA, C M A w i l l adopt environmental standards for the project
lased on company policy, legal regulatory limits in Peru, and World Bank
hidelines as well as the limits, objectives, and guidelines used in North America.
The project will employ a best management practices approach, as used by the
nining industry worldwide, to control emission sources and prevent accidental
.eleases during operations. During construction, control measures t o minimize
listurbance and to prevent and control erosion and spills were developed for each
xoject element (mine, port, roads, and power line) to limit environmental effects
md protect watercourses and sensitive habitats. These measures were described
:onceptually in the EIA and further elaborated by C M A as part o f a comprehensive
Mitigation and xoject environmental management plan. During construction, operations, and
Monitoring :losure, C M A w i l l monitor the quality o f discharges t o the environment as well as
h e ambient condition o f surface water, groundwater, air, and soil that may be
affected b y such discharges to verify compliance with Peruvian regulatory
requirements. In addition to direct monitoring o f water and air, C M A will
implement Environmental Effects Monitoring (EEM) to document the health o f
biological communities.
A resettlement policy and community-development plan were prepared. The
community-development program builds on the principles o f respecting the local
communities, engaging them in planning for change, emphasizing self-sustaining
and community-driven initiatives, and securing benefits for the community from
project development.

E I A follow-up and compliance involves the following:


MEM performs periodic audits (usually 3 times a year) to the mine and port sites. I t
also reviews the quarterly environmental monitoring information submitted by
EIA Follow-up and CMA.
Compliance
DIGESA performs periodic surveillance o f the ambient air and water adjacent to the
mine and port sites.
Monitoring results are reported to local environmental monitoring committees.

A total o f US$5-10 million was spent on EIA costs and permits. The Annual
E I A Cost Environmental Budget i s between US$3-4 million.

Public participation for the project followed Peruvian guidelines and included the
following: public meetings in the project area, open house in L i m a and formal
public hearing in Lima. The EIA was widely distributed and made available in
Spanish and English. Following project approval, local environmental committees
were set up in communities across the project.
Current public consultation efforts include:
Public meetings to discuss environmental issues
Public Distribution o f quarterly reports on CMA’s environmental monitoring program
Participation 0 Delivery o f the Environmental Impact Assessment (EIA) and annual
Sustainability Reports
Joint monitoring work with the participation o f the community, local entities,
government authorities, NGOs and other stakeholders
0 Resolution o f environmental grievances and claims
Guided visits by stakeholders to CMA’s operations
0 Involvement by C M A in regional environmental work groups, sponsoring the
participation o f the environmental committees and assisting in the development
o f local environmental policies.

184
.... .. .... . - -. . . ___

E I A Component Anafysis

Suggested improvements to the EIA process are as follows:


The EIA only considered the impacts o f each mine component separately and
should have assessed the project’s combined effect.
A stand-alone alternatives analysis should have been completed compliant with
O.P. 4.01 requirements
The E M P was conceptual in nature and more details should have been
provided.
A cumulative-effects and regional assessment should have been done.
Although public consultation and disclosure complied with Peruvian
requirements, efforts could have been initiated earlier in the EIA process. Since
project approval, C M A has adopted a comprehensive environmental
management program to implement project environmental controls. This has
overcome a weakness o f the EIA in which details o f environmental
management plans were not fully available at the time o f preparation.
Long-term liability issues are being addressed in response to new government
legislation on mine closure.
EIA Improvements
and C M A i s actively monitoring the implementation o f EIA commitments and success
Recommendations o f project mitigation. A third-party company also conducts independent audits.
for Follow-up Government monitoring and compliance review focus on compliance regarding
project air and water discharges, solid waste management, and tailings
impoundment stability.
On the social side, public consultation and involvement processes could have been
initiated earlier during the project-approval process. Since project approval, C M A
has taken a more proactive approach to public involvement b y forming
environmental committees across the project. C M A is initiating these efforts without
being directed t o by regulatory demands or requirements.
C M A has also formed the Ancash Association to help foster sustainable
development across the project. A fund o f US$1.5 million was established for this
purpose.
The EL4 for the Antamina Project demonstrates that EL4 is a tool to be used in a
comprehensive environmental management process over the life o f a project. The
EIA forms the basis for corporate commitments, which are then developed during
project operations. An adaptive management approach i s a key part o f the successful
environmental management program.
source: Scott-Brown !006)

I85
Case Study 2: Kallpa Thennoelectric Plant

8.44 The second case study i s an EIA o f the 380 MW Kallpa Thermoelectric Generating
Station; that EIA was submitted to the Ministry o f Energy and Mines in September 2005. The
Project EIA was downloaded from the MEM website and reviewed.

Table 8.5. Case Study Analysis: Kallpa Thermoelectric Plan

E I A Component Analysis

Globeleq Peru (S.A.), a division of Globeleq, i s proposing to construct and


operate a 380 MW thermal generation plant in the district o f Chilca,
Canete Province, L i m a Department. The plant w i l l consist o f two 190
Project Description
MW turbines and a 220V electrical substation. The plant will use gas from
the Camisea Project as an energy source and connect to the national grid.
N o information i s provided on project costs.
Timeline o f EL4 Activities September 2005, Submission o f EIA.
Regulations o f the Ministry o f Energy and Mines, Environmental Issues,
Screening
Energy required an EIA.
Scoping There is n o indication in the EIA as t o whether scoping was conducted.
The EIA was prepared by Walsh Peru S.A. The EIA complies with Laws
757 and 27446 and was prepared in accordance with the Guidefor
Environmental Impact Studies for Electrical Activities, the Environmental
EIA Preparation Protection Regulation for Electrical Activities - D.S. No. 029-94-EM (06-
08-94) and World Bank Thermal Power Guidelines for N e w Plants
(1998). Globeleq’s corporate policy i s to comply with the most stnngent
o f either Peruvian or World Bank emission standards.
The EIA process consisted o f three phases: Background reviewifield
work, impact analysis and report preparation. The impact evaluation
methodology follows World Bank and best EA practice procedures. A
cause-effect matrix was used to evaluate project impacts considering the
EIA Content following: duration, intensity, frequency, magnitude, and probability o f
occurrence. A positive or negative impact value was determined and an
impact significance value was assigned.

No analysis o f cumulative or regional effects was conducted.


Analysis o f Alternatives I N o analysis o f alternatives was described in the EIA document.
Impacts were described for both the construction and operations phase. A
summary of major impacts follows:

Environmental: impacts to air quality, noise, visual quality, changes in


Major Impacts land use. and faunal disturbance.

Social: impacts on traffic flow, expectations for employment, increase in


land prices and living costs, potential for social conflicts. Positive impacts
include provision o f employment and improved availability o f services.
EIA Evaluation and Decision 1 Under evaluation by MEM.

186
l_l__ -. l
^ l

ELA Component Analysis

Monitoring w i l l be done during both construction and operation phases.

Monitoring during construction w i l l focus on contractor compliance with


the project environmental management plan. A community-relations plan
Mitigation and Monitoring w i l l also be put in place to manage construction and operations impacts on
local communities and residents.

Monitoring during operations w i l l be done for stack emissions, air quality,


noise, and vibration.
Compliance monitoring on behalf o f the Government w i l l be done b y
OSINERG.

Globeleq w i l l implement an environmental management plan during


construction and operations; the plan w i l l include the following:
Impact prevention
EIA Follow-up and Compliance Solid waste management
Monitoring
Occupation health and safety
Community relations
Management o f social conflict

A Contingency Plan and an Abandonment Plan are also provided.


EIA Cost N o figures available in the EJA.
Four participatory workshops and four focus groups were conducted to
assess the local population’s perceptions o f the project and t o gain
Public Participation baseline information. Additionally, in accordance with the Regulation for
Public Participation, two information and consultative workshops were
held prior to the EIA and t w o others during preparation o f the EIA.
Suggested improvements to the EIA process include
A stand-alone alternatives analysis should have been completed
compliant with O.P. 4 01 requirements
The E M P was conceptual in nature and more details should have been
provided
A cumulative effects and regional assessment should have been done
EIA Improvements and considering other electncal generation projects and other industries
Recommendations for Follow-up
The levei o f effort expended in the EIA appears t o be sufficient, but n o
details are provided on project or EIA costs

Public participation appears to be sufficient relative to the extent o f the


project, but n o information is provided as to how information collected in
the EIA was used in the decision-making process.
Source: Scott-Brown (2006)

187
Case Study 3: EIA for the drilling of two development wells in Lote IX Piura

Table 8.6. Case Study Analysis: Two DevelopmentWells in Lote IX, Piura

EIA Component Analysis


I -. .-
.___
The project involves the drilling o f two development wells in Lote
Project Description
IX, Piura. Lote IX i s an existing field.
EIA was submitted in July 2005. N o further information on the
Timeline o f EIA Activities
status o f the EIA i s provided on the MEM website.
Regulations o f the Ministry o f Energy and Mines, Environmental
Screening
Issues, Energy required an EIA.
There i s no indication in the EIA document that scoping was
Scoping
conducted.
The EIA was prepared by E C O L A B SRL, Lima, Peru. N o
EIA Preparation
information i s available on EIA cost.
EIA approach, for the most part, consistent with World Bank
standards and involved the following: project description,
description o f natural and human environment, impact evaluation
EIA Content
using a matrix approach and preparation o f an environmental
management plan. N o analysis o f cumulative or regional effects. N o
formal alternatives analysis, including impact evaluation presented.
An analysis o f alternatives consistent with the requirements o f O.P.
Analysis o f Alternatives
4.01 environmental assessment was not done.
Environmental: impacts to air quality and noise associated with
drilling activities; impacts on soil quality from construction, spills
and improper disposal o f drilling waste; loss o f vegetation and
landscape alteration; and disturbance to wildlife due to noise and air
quality impacts.
Major Impacts
Socioeconomic: visual impacts o f drilling rig, potential impacts on
health due to operations and improper waste disposal, and risk o f
accidents due to increased traffic. N o archaeological resources were
encountered.
N o information i s available on the MEM website regarding a
~~

EIA Evaluation and Decision


decision on the EIA.
Monitoring o f air quality, water quality in runoff, and noise w i l l be
conducted. The environmental management plan outlines typical
Mitigation and Monitoring
best management practices to minimize the impacts o f drilling
activities.
N o information on follow-up and compliance provided. According
EIA Follow-up and Compliance
to established practice, OSINERG will be responsible.
EIA Cost N o information i s provided on EIA costs.
The status o f public consultation efforts is not clear. The EIA refers
Public Participation to participatory workshops, but the MEM website does not provide
the respective annex with the EM.

188
EIA Component Analysis
__ _. -
activities, with the most effort expended on analyzing baseline
information.
Suggested improvements t o the EIA process include:
A stand-alone alternatives analysis should have been
completed compliant with O.P. 4.01 requirements.
EIA Improvements and The EIA provides an extensive qualitative evaluation o f
Recommendations for Follow-up project impacts using a matrix approach, but project impacts
should have been quantified as much as possible.
The EMP was conceptual in nature, and more details should
have been provided.
Cumulative effects should have been addressed.
Based on the information provided in the EIA, public participation
does not appear t o be adequate.

189
Table 8.7. Analysis of Case Studies Compared to Best International EIA Practice

EIA Component Antamina Chilca Lote 64


Was EIA scoping conducted? Partial No No
Was public participation involved In EIA scoping? Low No No
Was EIA screening conducted? Yes Yes Yes
Was an analysis o f alternatives conducted? Partial No No
Was baseline data sufficient for prediction o f
Partial Yes Yes
environmental impacts?
Were data gaps identified? No No No
Was a quantitative evaluation o f project impacts
3 No No
conducted?
Was consideration given to the assessment o f
Yes Yes Yes
cumulative effects or indirect project impacts?
Was an environmental management plan developed
Yes Yes Yes
based on assessed project impacts?
Was there implementation o f the environmental
management plan and development o f an Yes Partial No
environmental management system?
Was public consultation started at the earliest stage o f
the project and continued throughout the life o f the Partial Partial No
project?
Was there feedback in the consultation process to
involve project-affected stakeholders in the EIA Partial Partial No
process?
Were broad public hearings held? Partial No No
Was an EIA monitoring and follow-up program
developed by the company to assess the effectiveness Yes Partial Partial
o f environmental and social management activities?

Designing Effective Instruments of Environmental Policy

Understanding the Limitations of Environmental Assessment

8.46 Environmental problems in Peru are as diverse as their causes. Without solid
environmental regulations and interventions that are targeted to redress specific problems, i t i s
impossible for EIA to deliver on the wrongly ascribed promise to be an environmental
management tool. As discussed in other chapters o f this report, the main environmental
challenges in Peru consist o f reducing the incidence o f waterborne diseases and illnesses caused
by urban and indoor air pollution, as well as minimizing vulnerability to natural disasters. EIA
cannot address these problems. It i s important to recall that EIA i s a planning tool for opening
up governmental decision making to public scrutiny by providing citizens the opportunity to
better understand the impacts and alternatives o f new projects that have potential significant
environmental impacts.

8.47 The above discussions shed light on the deficiencies in environmental planning and
monitoring o f compliance and enforcement in the EIA process. Coupled with these deficiencies
i s the incipient development o f environmental regulations aimed at addressing environmental
problems that are strongly linked to market failures, policy failures, or both. The existing
situation contributes to an implicit and flawed expectation regarding the role o f EIA-in
addition to i t s intended function o f being a planning tool, it i s expected t o perform as an
instrument for the management o f environmental problems and the preservation o f
environmental quality. For instance, EIA has become a de facto substitute for pollution-control
regulations and effective land-use planning, whereas it should form part o f the land-use

190
planning process. In countries with established EIA systems, managing environmental problems
linked to market failures i s done with environmental policy instruments that differ from EIA.
Indeed, managing and solving such problems i s only achievable through the design and
implementation o f economic instruments or command and control regulations that address
specific problems. These tools need to cover (i) pollution control; (ii)
technical environmental
specifications for sectoral environmental management; (iii) protection o f endangered species
and conservation o f biodiversity; (iv) land-use zoning and (v) conservation o f forest, water and
other natural resources.

8.48 As explained, EIA i s foremost a tool for environmental planning and not for
environmental regulation or environmental management. Furthermore, EL4 i s a tool for
identifylng potential adverse environmental impacts prior to a project’s implementation and
proposing measures to mitigate a project’s environmental impacts. However, i t s usefulness may
very well be undermined by market and policy deficiencies that act at cross-purposes with the
objective o f promoting environmental management. Currently, EIA i s perhaps the only point o f
contact between the environmental and productive sectors. Furthermore, other instruments such
as emission standards and land-use zoning are, at best, incipient in Peru.

8.49 The ambiguity regarding the purpose o f EL4 in Peru has led to a situation in which
neither environmental planning nor environmental regulation or management i s satisfactory;
consequently, environmental problems persist. Clearly, if EIA i s to be used as an environmental
management tool, it w i l l be important to develop additional instruments and regulations targeted
to Peru’s specific environmental problems. In other words, it i s futile to look to EIA alone as a
tool for redressing the existing market and policy failures in Peru and translating them to
improved environmental outcomes. Various mechanisms exist for controlling environmental
degradation, including (i)direct regulation by government or “command-and-control” measures;
(ii)economic and market-based instruments; and (iii) other approaches such as administrative
procedures, legal actions, and formal negotiation (Shchez-Triana, 1992, 1998, 2001). These
mechanisms are discussed in more detail in the following paragraphs.

Outdoor and Indoor Air Pollution

8.50 In Peru, outdoor and indoor air pollution results from market and policy failures. EIA i s
not a tool that lends i t s e l f to controlling air pollution, since EIA i s unsuitable for redressing
market and policy failures. Experience in other countries indicates that economic instruments
and command and control regulations are far more effective and efficient than EIA for
controlling air pollution.

8.51 Economic instruments or market-based instruments aim to modify the behavior o f


economic agents by providing incentives for these agents to internalize the externalities that
they may be producing. Economic instruments include tax differentiation, pollution charges,
and tradable permits (Stavins, 2001). In some countries, tax differentiation has been used to
reduce vehicle-related emissions by encouraging motorists to switch from leaded to unleaded
gasoline, from high sulfur to low sulfur diesel, and by encouraging clean car sales (Panayotou,
1998). Many European countries assess differentiated taxes and fees on vehicles according to
cylinder capacity, age, fuel efficiency, and other environmentally relevant aspects (Speck,
1998). A strong system o f enforcement and the monitoring o f investments are key to enhancing
the effectiveness o f tax differentiation systems.

8.52 Fuel types vary in their potential to produce atmospheric emissions that pollute the
environment (Table 8.8). In Peru, fuel taxes could be designed to promote a shift from using
dirty h e l s such as fuelwood and diesel, to clean fuels such as gas. The Government might
consider timing the implementation o f such taxes according to fuel prices. For example, if fuel
prices decline, then the Government could withhold reducing pump prices immediately. This
approach might incur less resistance than instituting a new tax. In addition, fuel-tax revenues

191
can help subsidize gas consumption by households in rural areas. Furthermore, increased fuel
revenues would provide additional resources to finance the investments required for state-
owned refineries to shift to producing cleaner fuel.

Table 8.8. Fuel Type by Level of Atmospheric Emissions

Coal (low sulfur) H M M L


Coal (high sulfur) H H M L
Fuelwood H H H H
Legend: L = low
emissions, H = high concentration o f atmospheric emissions, blanks indicate no atmospheric emission,
PM2.5 = particulate matter, SOX = sulfur oxides, N O x = nitrogen oxides, VOC = volatile organic
compounds.

8.53 Command and control measures include ambient standards, emission standards, and
technology- and performance-based standards. In Peru, the environmental regulatory framework
includes requirements for ambient standards (ECAs) and emission standards (LMPs). Since
PM2.5 and lead are priority air pollutants, the Government might consider adjusting ECAs and
LMPs to control the air concentration o f these pollutants. For example, findings from scientific
research suggest setting ambient air primary standards for particulate matter (PM2.5) at 14.0
pg/m3 (annual average) and 35 pg/m3 (24-hour average). Recommendations for technological
standards include reducing the sulfur content in diesel to 500 ppm in the short term and to 15
ppm in the medium term. Other technological standards might include requiring retrofit particle
control technology for diesel vehicles, and banning the importation o f used cars.

8.54 To control indoor air pollution, the Government might consider adopting a gas-pricing
policy aimed at fostering the use o f compressed natural gas and liquefied petroleum gas. T h i s
gas-pricing policy would promote available and affordable options for the poor to use as
substitutes for fuelwood. Another economic instrument to control indoor air pollution includes
the implementation o f subsidies for improved stoves. These subsidies would target poor families
and people most affected by the adverse health impacts o f such pollution.

Inadequate Water Supply, Sanitation, and Hygiene

8.55 Reducing the incidence o f waterborne diseases could be achieved through measures
such as these: (i) reducing regulatory barriers to the construction o f water supply and sanitation
projects; (ii) increasing subsidies to education campaigns for hand washing and the household
disinfection o f water; (iii)setting and enforcing strict standards for drinking-water quality,
particularly o f substances, such as most probable number o f fecal coliform, having adverse
health impacts; and (iv) setting water standards for uses that could impair human health,
including irrigation and recreation. In Peru, for agricultural uses, the Government might
consider prohibiting irrigation o f vegetables with wastewater containing more than 2000 NMF'
o f fecal coliform/lOO ml.

192
8.56 Public disclosure o f water-quality parameters has been very effective in fostering
continuous improvements in drinking-water quality. Reporting requirements include, for
example, the Drinking Water Consumer Confidence Reports required by USEPA since 1999.
Under this program, all drinking-water suppliers in the country should provide households with
information on the quality o f their drinking water, including specified information regarding
water sources and actual and potential contamination. In Peru, the Government might consider
implementing similar regulations requiring water utilities to publicly disclose environmental-
health related parameters on monthly consumer water bills such as pathogenic quality and data
on morbidity and mortality associated with waterborne diseases by area served.

Mexico has very effectively used regulations that require public disclosure o f water-quality
parameters relating to environmental health for beaches and other recreational areas. GoP could
consider a similar program to publicly disclose water-quality parameters relating to
environmental health for water-based recreational and tourism areas.

Natural Disasters

8.57 The design and implementation o f regulations relating to land-use plans and the
identification o f areas prone to natural disasters are more relevant and effective measures for
minimizing vulnerability to natural disasters than EIA. The Government could implement
policies on land-use planning for risk reduction that identify spatial uses for different human
activities - housing, infrastructure and productive activities like agriculture. The approach to
zoning should emphasize disaster prevention and mitigation; and it should take into account
critical constraints, risks and limitations arising from both human activity and the environment.

8.58 In developed counties, the most frequent market-based instrument used to reduce
vulnerability to natural disasters i s disaster insurance. Unfortunately, disaster insurance i s
seldom used in developing counties for a variety o f reasons (Freeman et al., 2003): the high
probability o f extreme weather events, the difficulty o f spreading risk in small economies
(relative to the magnitude o f risk), the adverse-selection problem, and thin markets for insuring
risk. However, a number o f potential risk-transfer mechanisms could be considered for Peru:
catastrophe insurance or bonds, access to an international insurance fund (such as that proposed
by the United National Framework Convention on Climate Change), private-public partnerships
(such as the Turkish Catastrophe Insurance Pool) and parametric earthquake insurance. These
and similar initiatives should be considered M e r .

Deforestation and Biodiversity Loss

8.59 Market and policy failures are important causes o f deforestation and degradation o f
Peru's ecosystems. In Peru, many markets simply do not exist for many environmental services.
Very high transaction costs, for instance, prevent the development o f markets for valuing the
ecological functions provided by the upper portions o f watersheds. Polluters and loggers have
few incentives to avoid downstream impacts associated with their wastewater discharges or
harvesting practices, since these social costs rarely translate into private ones. Another example
o f a market failure i s the situation where private property rights are ill-defined or unprotected.
Ths provides the opportunity for overexploitation o f natural resources and biodiversity, because
i t i s difficult to assess and distribute the costs and benefits o f mitigating environmental
degradation or abating pollution to individual polluters and parties affected by pollution or
environmental degradation. Market-based instruments such as payments for environmental
services could be considered by GoP to overcome these market failures.

8.60 Forest concessions are at the heart o f Peru's new forestry policy and are key to i t s
eventual success. Existing gaps in the legal framework should be addressed to better attack
illegal loggmg and trade in timber. Short term, illegal logging should be clearly defined as a
criminal act, and specific sanctions should be established for specific infractions, with offenders

193
prosecuted and penalties assessed without other concurrent crimes having to be committed. In
the future, efforts should be made to attract larger investors for the remaining forest
concessions, which consist o f approximately 9 million hectares. Consideration should be given
to creating a secondary market, where forest concessions could be traded. T h i s would attract
private investment, forge alliances with international buyers focusing on certified markets, and
strengthen concessionaires’ capacity to become part o f a chain o f production, and hence secure
a demand for their timber.

Water Pollution

8.61 Market failures in water pollution are pervasive in Peru. Despite persistent water
pollution associated with municipal wastewater discharges and agricultural non-point sources,
the attention o f environmental agencies has been restricted to few activities, namely mining,
energy, fishmeal, tanneries, breweries, cement, and pulp and paper. Effluent standards are the
instruments in place for water-pollution control. Typically, parameters for which l i m i t s (LMPs)
have been established and regulated include primary pollutants such as Biochemical Oxygen
Demand (BOD), Chemical Oxygen Demand (COD), Total Suspended Solids, PH, temperature,
odor, color, and taste. These limits are primarily o f aesthetic and ecological significance and
bear on water use for recreational purposes or water use for productive purposes such as in
agriculture and industry.

8.62 Efforts to regulate water pollution have been few and isolated, with mining and
tanneries being the only sectors that regulate substances such as lead, copper, arsenic, cyanide,
and chromium that have potentially adverse health impacts. In some cases, these regulations are
not effective. A case in point i s the mining sector where increases in the price o f gold on the
international market could present incentives to foster environmental degradation within the
country. Such price increases provide incentives for behaviors by small-scale miners that
maximize production at the expense o f environmental sustainability. Furthermore, control o f
such degradation i s particularly difficult, because such mining activities are informal. In this
case, appropriate options for mitigating pollution could include increasing the taxes on polluting
inputs, such as cyanide and mercury, that are used in gold mining.

Solid Waste Disposal

8.63 Inadequate waste disposal i s another environmental problem where EL4 can prove
ineffective without clear command and control regulations. There i s a blatant lack o f
environmental regulations for the disposal o f solid wastes and for the management o f hazardous
wastes. O f the 13,000 tons o f municipal solid waste generated, less than 20 percent i s disposed
o f in sanitary landfills, while 65 percent i s placed in unsafe open dumpsites, in rivers and on
beaches. The remaining 15 percent i s recycled, typically under conditions unsafe for human
health, usually during collection and at the site o f final disposal. Important factors contributing
to the existing situation o f waste management in the country are poor coverage o f waste-
management services and lack o f landfills, which has contributed to the proliferation o f unsafe
disposal methods and sites. Only eight sanitary landfills, most in the province o f Lima, operate
in Peru. Typically, the most highly populated, low-income districts have the poorest coverage
and regularity o f waste management services. For example, in San Juan de Lurigancho, Peru’s
most highly populated district, waste management service coverage i s 47 percent, with an
average frequency o f two times per week; final disposal coverage i s 42 percent; recycling i s 12
percent and coverage for other disposal services (to beaches and rivers) i s 46 percent. An
explanatory variable in the existing situation with collection and final disposal o f municipal
solid waste in Peru i s the lack o f precise regulations addressing the technical aspects o f design
and construction o f waste-disposal facilities, typically landfills. Decree No. 057 o f 2004
provides regulations to implement the General Solid Waste L a w No. 273 14 o f 2002. However,
the decree does not provide specific regulations in sufficient detail to ensure that landfills are
adequately designed.

194
8.64 Undoubtedly, there i s a need for detailed regulations that clearly address technical
criteria. These include, among others, siting o f landfills, treatment o f leachates, gas collection
and management, and management o f surface or storm runoff in the event o f flash flood or
huayco events. These needed regulations should provide t e c h c a l specifications for the design,
construction, and operation o f landfills. The preceding paragraphs show, that without clear
regulations and instruments, it would be unrealistic to expect EIAs prepared by project
proponents before project implementation to suffice for waste management. These regulations
and instruments should address (i)technical specifications for the design, construction and
operation o f landfills; and (ii)incentives for compliance o f waste generators and government
officials responsible for waste management, through appropriate sanctions.

Hazardous Wastes

8.65 Adequate hazardous-waste management requires an environmental regulatory


framework far beyond EIA. I t i s estimated that, each day, the country generates 4,700 tons o f
industrial waste. O f this amount, 81 percent or 3,807 tons are hazardous wastes. The main
sources o f industrial hazardous wastes are reported to be metallurgy, metallic manufacture,
printingpresses, oil refineries, and tanneries (DIGESA, 1998; Price, 2005). Approximately 65.5
tons o f hazardous wastes are generated by healthcare facilities (Price, 2005). One challenge to
adequate management and disposal o f hazardous wastes in Peru i s lack o f adequate
infrastructure to manage hazardous wastes. In Lima, there were only three autoclaves to treat
infectious healthcare wastes, each located at the healthcare establishment that owns it. I t was
reported that only 2 percent o f hazardous wastes receive any treatment or reach a secure
disposal facility (Price, 2005).

8.66 GoP i s preparing regulations relating to Law No. 28256 o f 2004 on Transportation o f
Hazardous Substances and Wastes. Among the topics to develop in the hazardous waste
regulations, the GoP might consider focused and unambiguous regulations that provide
sufficient detail to ensure adequate management and treatment o f hazardous wastes, allocate
clear roles and hnctions to environmental authorities, ensure segregating hazardous and non-
hazardous wastes, and define liabilities relating to compliance with hazardous wastes
management and treatment. Clearly, each type o f waste (hazardous and non-hazardous) should
be dealt with by a separate regulation. Furthermore, to ensure compliance, regulations should
promote accountability by assigning responsibilities for specific, identifiable waste-management
functions, such as waste collection and disposal, to specific positions in the municipal
governments, and using sanctions for noncompliance by the officers in those positions. Clearly,
in Peru, hazardous waste management i s beyond the realm o f EIA.

8.67 Policy failure i s also one o f the main causes o f hazardous-waste pollution. Explicit
subsidies favor wasteful hazardous-waste precursors, or overuse o f such precursors, or both. For
instance, agrochemical subsidies contribute to the overuse o f chemical inputs in agricultural
production, leading to the contamination o f water, soil, and produce. Addressing the
contamination impacts from agricultural projects through EIA could be highly ineffective and
inefficient, since existing policies do not provide incentives for polluters to reduce the use o f
chemical inputs or to seek alternative less-polluting inputs. Furthermore, if the cost o f abating
pollution exceeds the value o f apcultural output, this disincentivizes polluters’ investment in
the operation and maintenance o f pollution-abatement devices. Again, without first addressing
the policy deficiencies that stimulate environmental degradation, it i s not possible to achleve
far-reaching improvements in environmental quality outcomes. In effect, in addition to EIA,
Peru needs specific regulations and instruments that address, among other aspects, appropriate
pricing o f precursors o f pollution and environmental degradation, and appropriate pricing o f
natural resources such as water.

195
Water Resources Management

8.68 In the water sector, an example o f a policy failure i s water subsidies that encourage
inefficient water distribution and overconsumption by those with first access, while depriving
the “tail-enders”. In Peru, the Ministry o f Agriculture sets water fees in irrigation schemes. Fees
are priced far below the economic cost o f water and even below the operation and maintenance
costs o f the irrigation-scheme infrastructure. Because o f water’s l o w cost, together with low
collection rates o f water tariffs, water i s wasted and used inefficiently. Government
interventions that subsidize irrigation districts’ operation and maintenance costs contribute to
environmental problems such as soil salinization in the northern Pacific basin valleys o f Peru. In
this context, EIA may prove useless in trying to acheve far-reachmg and sustained results in
environmental quality improvements, since it can provide incentives neither for operations to
reduce waste o f water, nor for improved agriculture and irrigation practices to control soil
salinity. In effect, in addition to EIA, Peru needs specific regulations and instruments that
address, among other aspects, appropriate pricing o f water, efficient allocation o f water rights,
and improved collection o f water tariffs.

8.69 The restrictions o f the 1969 law were only partially addressed in 1989 and 1990
legislation, and the inalienable “right to water” continues to be a powerful impediment to the use
o f water charges. To promote more efficient use o f water resources and associated land uses, the
Government could revise the 1969, 1989, and 1990 Water Laws to authorize higher, broad-
based fees for water use. Regulatory reforms allowing for water pricing where i t does not yet
exist, and for higher charges where it does exist, will help address massive water-use
inefficiencies in the Coastal valleys, and w i l l lead to more rational resource management.
Where they already exist, in Coastal irrigation projects, water-use fees are typically far below
cost. Thus, in the short run, increasing water-use fees, and the longer-run improved land-
management patterns that result, can be expected to address soil salinization through less
overuse, especially for rice. Moreover, funds can be generated to invest in maintaining irrigation
systems.

Fisheries Overexploitation

8.70 Another example o f environmental policy failure i s the current fishery-management


system based on fishing licenses. Fish catch i s regulated by general permits that specify
seasonal, but not volume, l i m i t s on a fishery. T h i s policy creates an incentive to catch the
maximum volume o f fish in the shortest time possible. As a result, the fleet has become over-
dimensioned in both numbers and technology. Similarly, factories are geared to service a high
throughput in a very short period. Fleet and equipment remain idle during the off-seasons,
creating economic inefficiencies. In addition to these inefficiencies, the system encourages
waste and overexploitation o f fisheries. Fishers sometimes use dynamite and other non-
sustainable practices to maximize harvesting rates. When catch exceeds space in the hold, the
surplus (mostly dead or dying) i s thrown back.

8.71 Economic instruments are far more effective and efficient than EL4 to control
overexploitation o f fisheries. Experience in other countries indicates that, where individual
tradable fishing quotas (whch allow catching o f a gwen percentage o f the available catch) are
introduced, there are fewer incentives to overexploit fisheries and the industry i s more efficient.
In Peru, tradable fishing quotas could be far more effective in promoting the sustainability o f
fish stock, and mitigating pollution o f water bodies from activities in the fishery industry.

Sectoral Environmental Management

8.72 EIA i s foremost a tool for environmental planning and not for environmental regulation
or environmental regulation. Consequently, alternative environmental policy instruments should
be considered for addressing the consequences o f policy failure in infrastructure construction

196
and maintenance that are evident in weak environmental planning and management. A case in
point i s the above-mentioned construction o f the Interoceanic Highway. In addition to a badly
needed EIA, Peru requires (i) precise, unambiguous command and control regulations in the
form o f technical specifications for construction, operation and maintenance o f roads and
highways; (ii) regulations for land-use zoning; (iii)regulations for disposal o f waste and dirt
from movement during road construction and (iv) pollution control regulations for camps and
all potential urban and regional development activities induced by highway construction.

Conclusions and Recommendations

8.73 EIA i s Peru’s main tool for environmental planning. However, i t s effectiveness i s
undermined by the lack o f a uniform perspective, among governmental authorities, o f i t s
purpose. Specifically, there exists an ambiguity among government authorities as to whether
EIA’s purpose i s environmental planning or environmental management. T h ~ ambiguity
s has led
to a situation in which neither environmental planning nor environmental management i s
satisfactory. As a result, environmental problems persist. There i s a clear need for the
Government to clarify the purpose o f EIA. T o make EIA an effective planning tool, it i s crucial
to recognize the need to strengthen screening and scoping procedures and to improve
mechanisms for allowing representative public participation, including indigenous communities.

8.74 The existing inconsistency in the approach, content, timing, and requirements o f the
legal and regulatory process for EIA in Peru creates a lack o f standardization and uniformity in
the project-planning and approval process. In response, C O N A M i s designing regulations for a
unified EIA process for all ministries and sectoral authorities. This process will include
screening and scoping criteria that are consistent with the existing legal framework and
incorporate aspects o f best EIA practice. This will ensure consistency with the proposed SEIA
regulations and avoid proliferation between sectors o f different EIA standards. To enhance
EM’S effectiveness, it i s suggested that, for projects that pose no environmental threat or risk,
the need for carrying out EIAs be minimized. Carrying out fewer EIAs by concentrating on
significant projects with regional, precedent-setting impacts would greatly improve EIAs’
quality and increase opportunities for meaningful public consultation and community
participation.

8.75 Given that EIA in Peru i s currently used primarily for administrative purposes rather
than for mitigating complex environmental and social issues, there i s a need to clarify the
system’s objective. Furthermore, the design o f the new regulations presents a potential
opportunity to set uniform screening criteria for the identification o f projects with significant
impacts. These criteria could be aligned with national environmental and social priorities such
as protected areas and protected forests, indigenous peoples, vulnerable segments o f the
population, health issues, and vulnerability to natural disasters. Additionally, the screening
process could explicitly require an official statement from the National Geographic Institute o f
Peru regarding the location o f the proposed project in relation to sensitive areas. T h i s service
should have a cost for the project proponent. Important projects that involve significant
biodiversity issues or protected areas might be referred to INRENA.

8.76 The new EIA regulations could also serve to promote the adoption o f environmental
standards for the design, construction, and operation o f infrastructure projects in each sector.
These standards might be officially adopted, and ensuring compliance with them should be the
responsibility o f the sectoral units. By adapting and enforcing such Standards, localized, direct
impacts would be managed through the engineering process (design, construction, and
operation), rather than through the EIA process. T h i s would minimize the need for EIAs.
Furthermore, minimum environmental performance standards should be developed that each
sector would need to meet in order to conduct EIA. These minimum standards would include
the staffing and equipping o f environmental units in each sector, procedures, environmental

197
technical standards, enforcement capacity, and quality-control systems. C O N A M could conduct
annual performance audits o f selected sectors. Noncompliance with these standards would
trigger the need for improvement plans or ultimately for an EIA process that would involve
national agencies such as INRENA.

8.77 With a view to attaining financial sustainability for environmental units, the design o f
the EIA regulations might consider raising the cost o f environmental approvals, which presently
i s only a token amount except for the Ministry o f Health. An alternative i s to raise the cost o f
environmental approvals to a percentage o f projects’ capital costs. If control over receipt o f
these funds were possible, that would greatly increase the financial resources available to each
ministry to administer the EIA review and approval process. Additional financial resources are
required for the optimal functioning and staffing o f the various sectoral environmental
authorities.

8.78 Some form o f public consultation exists in those Peruvian ministries that currently
conduct environmental impact assessments, but the requirements and processes for consultation
are inconsistent and vary significantly among ministries. The new EL4 regulations might
develop a unified terms o f reference and procedures for public consultation. These TOR and
procedures would be applicable to all ministries and sectoral authorities, and consistent with
best EIA practice and public consultation procedures. Standardized procedures for public
consultation in Peru could be developed to include the following characteristics:

Timing o f public consultation procedures from the onset o f the project through approval
and implementation
0 Procedures for incorporating the results o f public consultation into the decision-making
process
0 Consistent disclosure processes for information dissemination and accessibility (e.g.,
location and language) for all stakeholders, including indigenous peoples
Feedback o f the consultative process’s results to participants

8.79 To address delays in public consultation in the EL4 process, early public consultation
should be institutionalized. The existing process consists o f public hearings that are held, on
average, 30 days prior to a decision on project approval. However, a decision has essentially
been made by the time such hearings are held. Consequently, the existing process should be
reviewed. In addition, mechanisms should be established to allow the public to effectively
contribute to the project decision-making process. To facilitate stakeholder participation,
mechanisms could be established to reimburse stakeholder costs for attending public
consultation sessions and public hearings in centralized locations rather than in project-affected
areas.

8.80 If EIA i s to be used as an environmental management tool, i t is important to recognize


the EIA’s limitations for this purpose, particularly where market and policy failures are strongly
linked to environmental problems. Consequently, clear and specific regulations targeted to
specific environmental problems need to be developed. Various mechanisms exist for
controlling environmental degradation, including (i)direct regulation by government or
“command-and-control” measures; (ii) economic and market-based instruments; and (iii) other
approaches such as administrative procedures, legal actions, and formal negotiation. Economic
instruments such as fuel taxes or a gas-pricing policy could be more effective tools for
redressing the existing market and policy failures in Peru and translating them into improved
environmental outcomes. Command and control measures should be promoted and aligned with
the country context and conditions; such measures include environmental standards for air
pollution, PM2.5, and quality standards for drinking water.

198
CHAPTER 9

OPPORTUNITIES AND CHALLENGES FOR


EFFECTIVE ENVIRONMENTAL MANAGEMENT

Since 1990, Peru has developed a National System for Environmental Management
(Sistema Nacional de Gestibn Ambiental - SNGA) coordinated by the National
Environmental Commission (Comisidn Nacional Ambiental- CONAM). The system s
responsibilities include natural resources management, sectoral environmental
planning and management, environmental health protection, and conservation of
natural protected areas. Analysis of the existing organizational framework suggests a
number of strategic options to strengthen SNGA ‘s capacity to address environmental
problems. These options include (i) implementing a priority-setting mechanism to tackle
environmental problems that afSect the most vulnerable groups, (ii) increasing
accountability and transparency in environmental decision making, (iii) developing a
social learning system aimed at continuous improvements in environmental policy
design and implementation, and (iv) fostering investments in sustainable development
programs’ O8

Introduction

9.1 To manage renewable natural resources, protect the environment, and mitigate
environmental impacts associated with projects in key productive sectors, the Peruvian
Government has made efforts to consolidate an organizational structure for environmental
planning and management. Among these efforts, the GoP has done the following: (i) established
an institutional system (Sistema Nacional de Gestibn Ambiental - SNGA) to harmonize
environmental legislation and institutional responsibilities; (ii)
created a national coordinating
agency (CONAM) under the President o f the Council o f Ministers; (iii) developed sectoral-
based environmental units in the Ministries o f Mines and Energy, Transport, Production, and
Housing; (iv) established an agency responsible for managing water, forestry, and biodiversity
resources (Instituto Nacional de Recursos Naturales - INRENA); (v) established a unit
(DIGESA) within the Ministry o f Health to manage environmental health programs; (vi)
consolidated a natural protected areas system; (vii) decentralized oversight o f environmental
management plans and management o f forests and water resources; and (viii) given
responsibilities to the Comptroller’s Office and the Ombudsperson to enhance accountability,
transparency, and public participation.

9.2 The organizational structure in place for natural resources management and
environmental protection has been effective in establishing a system o f natural protected areas,
encompassing more than 12% o f Peru’s territory and lowering deforestation rates in comparison
to neighboring countries (INRENA 2005). There has also been significant progress in watershed
management.

9.3 However, as discussed in this report’s preceding chapters, the greatest challenges facing
Peru are associated with urban air pollution and lead exposure; inadequate water supply,
sanitation, and hygiene; indoor air pollution, natural disasters; and land degradation. The
Peruvian model has evidenced significant weaknesses in trying to address priority
environmental problems. Despite the economy’s evident reliance on natural resources and the

‘Os This chapter was prepared by Emesto Sinchez-Triana, William Reuben and Carolina Urmtia. T h i s chapter draws
on background documents prepared by Manuel Glave and Rosa Morales (2006), Nelson Shack (2006) and Manuel
Pulgar-Vidal(2006).

199
negative impacts o f environmental degradation on economic growth and social development,
environmental planninghas not been incorporated into the hghest policy-making level.

9.4 This chapter reviews the organizational framework in place to address environmental
priority issues and suggests strategic options for government actions. The chapter has seven
sections. Following this introduction, section two presents the findings o f an environmental
expenditure review and examines mechanisms for environmental priority setting. Section three
analyzes environmental agencies’ management capacity, including financial sustainability,
human resource management, and institutional alignment and cooperation. Section four
discusses accountability, transparency, and checks and balances within and among
environmental agencies at various levels. Section five examines alternatives for aligning policy
options that tackle priority environmental problems with organizational reform. Section six
describes proposals for restructuring the governmental agencies responsible for water and
forestry resources management, as well as those in charge o f managing natural protected areas.
Section seven provides recommendations.

Planning and Priority Setting

9.5 The Peruvian system for environmental planning and environmental priority setting has
improved since the creation o f the National Environmental Commission (CONAM) in 1994.
However, there are severe shortcomings in the system’s ability to identify and address priority
environmental problems. Examples o f these shortcomings are the inadequate funding o f the
environmental sector and the decrease in the national government’s total environmental
expenditure from 2001 to 2005.’@’

9.6 Peru’s historical levels o f environmental expenditure are inadequate to respond to the
country’s environmental priorities. Between 1999 and 2005, annual environmental expenditure
has averaged US$85.39 million, an amount that represents 0.01% o f GDP (Shack, 2006). Thus,
resources allocated for environmental protection represent a small fraction o f the estimated costs
o f environmental degradation, w h c h as mentioned in this report’s preceding chapters, are
estimated to represent 3.7% o f Peru’s GDP. Environmental expenditure as a percentage o f GDP
i s also low by international standards, particularly when compared to OECD countries, which
typically spend between 0.05% and 0.07% o f GDP.

9.7 The national government’s total environmental expenditure has decreased between
2001 and 2005 (Figure 9.1).This expenditure has also decreased as a percentage o f the national
government’s total non-financial national public expenditure since 2000, although 2004 shows a
slight increase. The only environmental expenditures showing positive rates between 2001 and
2005 are those related to emergency response systems to natural disasters and relief, and to
biodiversity conservation (Figure 9.2). The damages caused by the El Nifio phenomenon explain
the former, while the latter shows a shift in the government’s preferences to enhance the
conservation agenda.”’

IO9 According to CONAM, “the fluctuations, generally reductions, o f the amount o f resources that the State invests in
the environmental sector are not the result o f problems with the identification o f priority environmental problems[. ..]
Every t w o years, with the participation o f sectoral environmental authorities, a process i s undertaken to update the
National Environmental Agenda (Agenda Ambienfal Nacional), which i s the basic document for planning the actions
to be carried out by the organizations that integrate the SNGA. The problem i s the result o f the difficulty o f
integrating environmental issues, particularly at the highest political levels, in the planning and decision-making
processes focusing o n development, particularly as a result o f the actions o f those interested in fostering productive,
commercial, andor subsistence activities with profound environmental impacts.” ( Bemal, 2006; p. 10)
‘I’ According to CONAM, “it is important to indicate that the investment levels [...] show a clear difference o f
orders o f magnitude between the amount invested in the areas o f water resource management and sanitation and those
invested in other areas, such as biodiversity protection, which are much smaller than the former. This problem is
largely explained by the fact that water resources, and particularly sanitation, are generally not perceived as issues of

200
Figure 9.1. Evolution of National Environmental Expenditures in Peru

7.00% 400.000.000

5.00X 350,000,000

300,000.000
5.00%
Environmental expenditures as
250,000,000 a percentage of the total non-
4.00% finantial national public
expenditures
200,000,000
+Total environmental
3 00% expenditures (in noninal US$)
150,000,000

2.00%
100,000,000

I .OO% 50,000,000

0.00% 0
1999 2000 2001 2002 2003 2004

Source: Shack (2006)

9.8 Peru’s falling allocations o f resources for the environmental sector have taken place
within a favorable economic context. Between 1999 and 2005, Peru experienced economic
growth in real terms and on a per capita basis, while total government spending as a share o f
GDP also increased. Thus, observed decreases in governmental environmental expenditure, both
in monetary terms and as a percentage o f total governmental spending, seem to indicate a
relative loss o f importance o f environmental degradation and the unsustainable use o f natural
resources relative to other social concerns.

9.9 Analysis o f national government expenditures found that priority environmental


problems such as control o f outdoor and indoor air pollution and o f lead exposure, and
reduction o f waterborne diseases and vulnerability to natural disasters received very low or no
budgetary allocations (Figure 9.3).

the environmental agenda, but o f the productive and social agendas, respectively, and therefore receive more
attention and resources.” (Bernal, 2006; p. 10)

20 1
Figure 9.2. Evolution of Peruvian Environmental Spending from 1999 to 2004

--t Water Resources Management


4- Water Pollution Control
Sanitation
Air Pollution Control
+Natural Disasters. Emergency Response and Relief
-+- Soil Degradation Prevention & Control (Erosion & Salinization Control)
i-Forestry Resources Management (Deforestation Control)
-Fishing Resources Management (Overfishing Control)
~ Waste Management
Rural Land U s e
Urban Environmental Problems
General Environmental Geographic Planning
Biodiversity Protection
Control o f Substances Reducing the Ozone Layer
Climate Change Adaptation and Mitigation

202
9.10 There i s a strilung divergence between the issues perceived as a priority b y the Peruvian
population and the current allocation o f environmental resources. Indeed, a study conducted by
Instituto Cuanto in 1998 showed that the Peruvian population identified air and water pollution
as among their greatest environmental concerns (1998). A GEA survey in 2004 confirmed these
findings by identifying air pollution as the main priority for the Lima-Calla0 area’s population
(GEA, 2004).

Figure 9.3. Rate of Growth of Selected National Environmental


Expenditures from 1999 to 2004

I
100%

80%

60%

40%

20%

0%

-20%

-40%

-60%

Source: Shack (2006)

9.1 1 Several characteristics o f Peru’s planning and decision-malung mechanism contributed


to the observed dwonnect in priority setting. The first o f these i s the lack o f analytical work to
support governmental decision making. T h i s i s further aggravated by the lack o f representation
o f certain sectors and stakeholders in the venues where decisions are made, resulting in a
particularly apparent absence o f the most vulnerable groups’ voices and concerns. Another
important missing element i s a formal mechanism for allocating financial and human resources
according to key environmental priorities linked to poverty alleviation and social priorities.
Besides increasing the effectiveness o f environmental policies and management for poverty
alleviation, the incorporation o f these three elements would allow increased accountability in
decision makmg and in policy design and implementation.

9.12 An international comparison o f environmental institutional arrangements suggests that


those countries in which biodiversity conservation, natural resource management, and
environmental health functions are assigned to specialized governmental agencies lead to work
that i s more effective and resource allocation that i s more balanced (Table 9.2). T h i s may be
because allocating these diverse responsibilities to a single agency may lead to unequal attention
-and unequal budget allocation-to priority environmental problems. Studies conducted in
different countries (World Bank, 2005a, 2006) indicate that international assistance i s more
often available for projects and programs related to global environmental issues-such as
biodiversity conservation and climate change mitigation-rather than for local environmental
programs that benefit the most vulnerable groups. The same appears to be true in the Peruvian
case (Figure 9.4). Malung one agency responsible for too many functions may lead to
competition for resources for activities that require more balanced attention and resource
allocation.

203
9.13 Another reason for specialized agencies to attend to biodiversity conservation, natural
resource management, environmental health protection, and reduction o f vulnerability to natural
disasters may be the different coordination schemes required for effective policy design and
implementation. Attending to environmental health problems requires significant collaboration
between health and environmental agencies, whde effective conservation efforts and natural
resource management depend on cooperation between agricultural and environmental sectors.

9.14 Institutional arrangements documented as successful, such as in the United States, have
set in place a sectoral model for environmental impact assessment. When complemented by
overall strict and stable environmental requirements and clear and transparent enforcement, this
model appears to increase the likelihood of effectively incorporating environmental
considerations into other sectors. Models in which environmental impact assessment i s
centralized under one institution’s mandate have not been documented as successful (Ortolano
and Abracosa, 1986; Ortolano and Smkule, 1996; Ortolano, 1997; Sanchez and Morillo, 1998;
IADB, 2002).

Table 9.1. Institutional Arrangements for EnvironmentalManagement in


peru,lll,llZ,l13 2006

;ency

z
3

i;
I Responsibility
I
I
Design o f national environmental policy
I J
I
Enfomcment o f environmental policies

I Coordination o f national environmental I J

E n f o r c e m e n t o f pollution control
measures
I lJ 1J J I J I
managcmsnt. Allocatioii of watcr righffi

I
J I J I J
EIA

I Reduction o f vulnerability to natural I


disasters
Conservation and protected areas *

According to CONAM, “The design o f the National Environmental Policy and its coordination are exclusively the
responsibility o f CONAM and the PCM, not o f the sectors, which are responsible for the promulgation and
verification o f compliance with the specific sector regulations.” (Bernal, 2006; p. 9 )
According to CONAM, “INRENA is the entity that is responsible for the National System o f Natural Protected
Areas (Sistema Nacional de Areas Naturales Protegidaspor el Estado - SINANPE).” (Bemal, 2006; p. 9)
‘I3According to CONAM, “INRENA shares responsibilities for biodiversity management in Peru with CONAM,
which i s the National Focal Point o f the Convention o f Biological Diversity and with the Production Sector (through
the Peruvian Sea Institute) in the area o f hydrobiologic resources (fish, mollusks, crustaceans, algae, etc.)” (Bemal,
2006; p. 8)

204
Table 9.2. Institutional Arrangements for the Environmental Sector in Bangladesh,
Coiombia, Hong Kong, Mexico, and the United States

Institutions*

Mexico I HongKong I Colombia I I


USA

USA Colombia USA


USA

Mexico USA Hong Colombia


USA Hong Kong Kong* *

USA Hong Colombia


Hong Kong Kong** USA

Mexico Colombia

I I
Mexico
USA

* Practices documented as successful are h hlighted in bold.


** Although the Hong Kong Agriculture, sheries, and Conservation Department i s under the Secretary
for Health, Welfare, and Food, it i s also responsible t o the Secretary for the Environment, Transport, and
Works.

9.15 Peru’s Annual Budget Law made the National Public Budget Office (Direccidn
Nacional de Presupuesto Pziblico - DNPP) responsible for linking the allocation o f financial
resources to multi-year strategic sectoral plans (PESEM), Concerted Regional Development
Plans (PDRC), Concerted Local Development Plans (PDLC) and Institutional Strategic Plans
(PEI). However, in practice, the allocation o f resources follows an institutional rationale to
finance each institution’s planned activities, rather than to establish and maintain cross-sectoral
programs that do not respond to specific institutional priorities. As a result, budget formulation
becomes a rather inert process o f resource allocation according to agencies’ expenditure levels
in different categories and their expected increase for the next year. T h i s budgeting system leads
to allocations that are considerably misaligned with national environmental priorities. Indeed,
the ultimate decision with respect to the amount allocated to each agency i s a discretionary
process guided by each agency’s negotiating power. Therefore, the current allocation o f
environmental resources in part reflects differences in the negotiation capacities o f Congress
and MEF and the different environmental agencies and stakeholders such as DIGESA and
INRENA and N o s that represent other interests.

205
9.16 Nevertheless, other plausible explanations for the way in which resources have been
allocated include the lack o f reliable and complete data available to public institutions to support
informed priority setting. Peru's current data collection infrastructure-including environmental
laboratories, measuring stations, documentation centers, and basic cartography-is inadequate
by many accounts. Companies are not required to monitor or report their effluent discharges.
Furthermore, the National System o f Environmental Information (Sistema Nacional de
Infomacidn Ambiental - SINIA) often faces problems in generating timely information. Lack
o f financial resources frequently compromises the generation o f information. The GoP also
faces important challenges in trying to implement environmental regulations and plans, since
most environmental agencies lack sufficient management capacity to perform their functions in
a sustainable manner. Major problems associated with management capacity are (1) insufficient
and insecure fbnding, (2) lack o f a human-resource system based on merit and skills
development, (3) lack o f incentives to implement a results-based management system and
mechanisms o f organizational learning, and (4) limited capacity and incentives to coordinate
with other agencies.

Management Capacity o f the Environmental Agencies

9.17 Capacities for human resource management vary from agency to agency. INRENA has
highly qualified personnel. The large number o f experts in areas such as irrigation, water
resources management, forestry, and biodiversity conservation has resulted in continued
emphasis on conservation, natural protected areas, forest, and water resources management.
Although this has resulted in Peru's considerable success with these issues, it has also
contributed to the absence o f an active assessment o f Peru's highest environmental priorities. In
comparison, between 1992 and 2005, the human resource capacities o f DIGESA and other
environmental agencies decreased because o f the downsizing o f the public sector (Hanrahan
et al., 1995; Figueroa, et al., 1996; World Bank 2000,2005d).i15

Table 9.3. Institutional Capacity: Budget and Staff, 2006

CONAM INRENA" DIGESA


Budget $13,197,290 $90,029,671 $16,000,000
Staff total 91 196 109
Officials 17 68 6
Professionals 29 58 39
Technical 32 60 34
Auxiliary 13 10 30

9.18 Environmental agencies face two main problems regarding fmancial sustainability.
Some agencies lack the minimum funding to perform their h c t i o n s in a sustainable manner.
Others are highly dependent on resources from the donor community. For example, the air and
water GESTAs have not been given a specific budgetary allocation (partida presupuestaria) to
ensure the funding o f their operations. National regulations mandate that GESTAs be funded on
~~

Several officials o f environmental agencies have expressed concern about the wave o f early retirement o f the most
expenenced personnel s t e m n g f r o m the downsizing o f the public sector.
'I5A forthcoming IADB analysis o f enwonmental agencies' human capacities should detail the different agencies'
opportunibes and challenges in human resource management

206
an annual basis. However, in practice, the GESTAs have not been successful in securing
funding for program to control air pollution and currently lack access to any source o f funding.
Ths situation i s causing the capacity and motivation o f GESTA's members to deteriorate, as
evidenced by the fact that the most successful GESTA functioning in Arequipa fully depends on
international cooperation.' l6

9.19 In other cases, the existing resource allocation system does not provide incentives to
make the best choices regarding environmental projects. For example, funds for addressing
natural disasters are allocated only after earthquakes, floods, or landslides have impacted
communities. Therefore, t h s financial mechanism may be providing a perverse incentive that
encourages competent agencies to concentrate their efforts on responding to disasters rather than
on trying to prevent disasters or minimize the impacts o f non-preventable disasters.

9.20 In the late 199Os, environmental and natural resource projects (or environmental
components o f projects) funded by nonrenewable international cooperation amounted to an
estimated US$411 million. These funds supported 21 1 environmental projects, while
concessional loans supported 10 additional projects, totaling US$735 million (Guinand and
Chavez, 1997). Funding by international donors has continued in different areas. By 2005, the
most important bilateral sources o f aid were Japan, the United States, the Netherlands,
Germany, Canada, and Switzerland. The most important sources o f multilateral aid in 2005
were the World Bank, IADB, EU, WFP, UNDP, ITTO, FAO, and GEF. The GoP identified as a
major problem with external fkding i t s instability'" as an income source. From 2000 to 2005,
donors gave greater attention to programs such as biodiversity protection and climate change
mitigation (Figure 9.4). Coordination mechanisms between donors and Peruvian public
environmental agencies exist but need to be strengthened.

Figure 9.4. Donations and Transfers by EnvironmentalCategory

Sanitation

Control o f .5%
whqtanrw

1.9%

-i
Biodiversi y
Protection
0.2%

67.4%

Source: Shack (2006)

I16
Arequipa's GESTA-Air receives support from the Swiss Agency for Development and Cooperation (COSUDE).
Guinand and Chavez (1997) show that recent initiatives to prepare investment projects (e.g., through sector work)
on the environment were never converted into loans (e.g., Institutional Environmental Strengthening 11, Mantaro
Valley 11, and Environmental Management o f the Rio Rimac Watershed 11).

207
Inter-institutional Coordination

9.21 Important efforts have been made to ensure coordination for implementing plans and
regulations across sectors and different territorial units and between the sectoral and territorial
dimensions o f environmental management. However, the challenge remains significant for two
reasons: (1) Peru’s great geographic diversity requires the coordination system to possess
sufficient flexibility to address the regions’ different environment issues; and (2) due to the
sectoral division o f environmental agencies, rivalries exist and there are few incentives for
agencies to cooperate.

9.22 CONAM has focused its efforts o n designing a cross-sectoral and decentralized
management system known as the National Environmental Management System (Sistema
Nacional de Gestidn Ambiental - SNGA). Specific coordination structures have also been
created to manage different environmental problems and natural resources requiring inter-
sectoral and geographical coordination. However, the results o f these initiatives vary widely
according to the complexity o f managing specific natural resources. This i s the case for the Air
and Water GESTAs, which were created to involve private and public stakeholders in defining a
management plan to protect and use natural resources. Although the GESTAs include
participation by key stakeholders, GESTAs’ management plans have not been successfully
implemented. For example, thirteen GESTA-Air were established in 200 1. O f these, two have
produced plans for air quality management that have been approved, and three are in various
stages o f the approval process. The remaining eight are s t i l l collecting the necessary data to
draft plans (Glave and Morales, 2006). O n the other hand, the GESTA-Water was established in
1999 by Presidential Decree and i s divided into five working groups. Their proposals for E C A
and L M P have not yet been approved internally or by DIGESA and INRENA.

9.23 Major environmental issues still lack the minimum coordination structure for defining
priorities and action plans. Th~si s the case for environmental problems such as indoor air
pollution, vulnerability to natural disasters, and overexploitation o f fisheries. The delay in
initiating coordination activities for these environmental issues might be due to the lack o f
representation o f groups affected by these problems on CONAM’s Board o f Directors.

9.24 C O N A M has promoted the decentralization o f coordination responsibilities through the


creation o f six Regional Executive Secretariats (Secretarias Ejecutivas Regionales - SER) and
26 inter-institutional coordination agencies called Regional Environmental Commissions
(CARs), which include local governments, NGOs, universities, and economic sectors interested
in the region’s environmental sustainability. However, potential overlaps and gaps in the
functions and responsibilities o f organizations at the sub-national level, coupled with high staff
turnover, could hamper the organization’s functioning. For example, there are potential
ambiguities about whether C A R or the environmental units within local governments are the
entities responsible for GESTA implementation. In some cases, the regional government
assumed the presidency o f the GESTA and thus became highly involved in implementing action
plans. However, in other cases, a lack o f interest by some regional governments leads to
suboptimal implementation o f action plans. 1 1 8 7 1 1 9

According to CONAM, “...[T]here are currently only six SERs, which cover multi-region areas: Cusco-Puno-
Apurimac, Arequipa-Moquegua-Tacna, Loreto-San Martin, Junin-Pasco, Cajamarca-Lambayeque-Atnazonas y
Ancash - L a Libertad. There are currently 26 CARs; they cover the totality o f the national territory, constituting
public-private spaces for the discussion and concertation o f Regional Environmental Policies, Agendas, and Action
Plans, but they do not have in their mandate a function for enforcing environmental legislation.” (Bernal, 2006; p. 10)
’I9 According to CONAM, “There is great clarity about the distribution o f responsibilities between the CARs and the
recently established Units o f Natural Resource and Environmental Management o f the Regional Governments.
Complications regarding the coordination of activities and fulfillment o f specific mandates have arisen in each
instance due to problems with the very high turnover o f the staff responsible for those Units (in the specific case of
the Pun0 Regon, there have been seven different Managers between early 2002 and mid-2006).” (Bemal, 2006; p.
10)

208
9.25 Such uncertainties, in addition to lack o f political will and accountability, have reduced
the effectiveness o f these decentralization initiatives. Local implementation o f environmental
initiatives i s being affected by the absence o f a roadmap that defines what, when, and how
environmental policy i s going to be decentralized. To avoid the duplication o f roles and
functions, the increase o f transaction costs, and the ambiguity o f accountability responsibilities
among decentralized agencies, the Peruvian environmental sector could learn from the
decentralization process that the social sectors are already experiencing.

Organizational Learning

9.26 Management practices in Peru are beginning to incorporate the concept o f results-based
management aimed at adopting formal mechanisms to promote organizational learning.
Transparency with respect to results-based performance i s important, but so i s transparency with
respect to the effectiveness o f environmental expenditures to address environmental priorities
and admmistrative practices. A wide range o f goals and indicators has been set through the
National Environmental Agenda. These goals and indicators might be strengthened by setting
measurable goals and quantitative indicators, and periodically evaluating achievements. T h i s
would allow corrections in processes of reforming and improving their practices.”’

9.27 Strengthening o f Peru’s environmental management framework might also include


systematic processes o f learning from experiences that can help guide actions in the present and
future. Peru’s environmental system would benefit from having a comprehensive evaluation
system. Baselines could be created at the beginning o f interventions, and government
institutions could systematically conduct performance and impact evaluations. With regular
evaluations, the learning process would be strengthened, and institutional adjustment and
adaptation would build on Learning, in the context o f Peru, would be
particularly important in three respects:
1. Learningto adaut and adjust specific policies and institutions. One example o f this type
o f learning would be enabling government capacity to systematically reevaluate
environmental priorities periodically with the use o f rigorous and consistent
methodologies and adjust environmental expenditures accordingly. Another example
would bear on adjusting to new developments in science and technology, as i s the case
with understanding the causes o f health problems linked to air pollution (e.g., fine
particulate matter) or lead exposure. A third example involves assessment and learning,
on an ongoing basis, regarding potential institutional instruments (e.g., accountability
mechanism) to make environmental management more effective.
2. Learning fiom past experiences. An example relating to this type o f learning concerns
using experience to continuously improve systems for air quality monitoring.
Experiences such as these are extremely valuable in identifylng what works and what
does not work in monitoring and implementation.
3. Learning fiom good practices in environmental revenue generation at the local
government level. An interesting issue regarding Peru’s environmental management i s
the greater allocation o f revenue for environmental management at the local levels
compared to the national level.

According to CONAM, “One o f the objectives o f the National Environmental Agenda i s to define sectoral specific
goals whose fulfillment or unhlfillment can be used to gauge progress in the implementation o f environmental
policies. Additionally, CONAM has been developing some instruments to measure the achievements o f results by the
organizations with environmental responsibilities.” (Bemal, 2006; p. 10)
121
According to CONAM, “The process for the elaboration o f the National Environmental Agenda, which covers a
two-year period, implies a participatory revision o f accomplished results and the definition o f future goals and
objectives for environmental management. The conduction o f this process, which is not exempt fiom difficulties, has
been one o f the greater strengths o f CONAM throughout its stewardship. [. ..] This process enables the Government
to reevaluate and adjust periodically i t s environmental priorities.” (Bemal, 2006; p. 11)
According to CONAM, “Regarding the issue o f the capacity to learn fiom previous experience, CONAM makes a
permanent effort to systematize the processes that i t carries out and to transparently communicate achievements and
obstacles.” (Bemal, 2006; p. 11)

209
Decentralization Process and Results

9.28 Several initiatives have promoted the decentralization o f environmental responsibilities


in Peru. The Decentralization L a w specifies the purpose o f environmental decentralization:
improving territorial zoning plans, sustainable management o f natural resources and
environmental quality through the promotion o f inter-institutional coordination and citizens’
participation. However, in practice, only a few functions have been effectively decentralized,
and most o f them involve regional rather than municipal or district governments. Some
functions concerning forestry and natural-disaster management have been decentralized to
municipal governments (Table 9.4).

Table 9.4. Environmental Functions Decentralizedto Regional Governments


Sector Decentralized functions
Fishing Research and information on technological services to preserve the environment.
Control the application o f fishing norms and enforcement o f sanctions for noncompliance.
Mining Approve and supervise EIA and its adaptation to small and traditional mining.
Control the application o f norms for small and traditional mining and enforce sanctions for
noncompliance.
Energy Evaluate and approve EIA for activities related to electricity on a small scale.
Evaluate and approve the EIA o f gas providers.
Tourism Verify the application o f norms for the preservation o f natural resources linked to tourist
activities.
Health Disseminate, adapt, and ensure compliance with national norms on environmental health and
workplace health.
Disseminate, control, and evaluate the application o f norms related to the management of
public health services at the regional level.
Identify, prioritize, and evaluate, in coordination with local governments, issues concerning
environmental health and workplace health.

9.29 Despite modest progress in decentralizing environmental functions, local governments


have been increasingly involved in implementing environmental plans. In 2003, total
environmental expenditures were higher at the local level than at the national level. However, it
i s important to note that the high amount o f local governments’ operational expenditures i s
largely due to the inclusion o f expenditures related to solid waste management in this category
(Figure 9.6). Waste-management systems have a positive impact on improving the population’s
living conditions, the value o f urban real estate, and business opportunities like tourism.

210
Figure 9.5. Environmental Expenditures by National, Regional, and Local Governments,
1999-2004 (US$ Million in Current Dollars)

120
110
100
90
a0 (Qperatimo)

70
IRegionel Govl
(OPe=tbnS)
60
(OPeraharS)
50 National Govt
(Imesbnents)
40