The World Bank Support to the Subnational Transport Program Project (P132515) REPORT NO.: RES54771 DOCUMENT OF THE WORLD BANK RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SUPPORT TO THE SUBNATIONAL TRANSPORT PROGRAM PROJECT APPROVED ON DECEMBER 11, 2015 TO REPUBLIC OF PERU TRANSPORT LATIN AMERICA AND CARIBBEAN Regional Vice President: Carlos Felipe Jaramillo Country Director: Pilar Maisterra Regional Director: Maria Marcela Silva Practice Manager/Manager: Eric R. Lancelot Task Team Leader(s): Li Qu, Irene Portabales Gonzalez The World Bank Support to the Subnational Transport Program Project (P132515) I. BASIC DATA Product Information Project ID Financing Instrument P132515 Investment Project Financing Original EA Category Current EA Category Partial Assessment (B) Partial Assessment (B) Approval Date Current Closing Date 11-Dec-2015 28-Feb-2023 Organizations Borrower Responsible Agency Republic of Peru Provias Decentralizado Project Development Objective (PDO) Original PDO The Project development objectives are to (i) facilitate sustainable road access of Peru's rural populations to services, (ii) reduce transport costs on rural roads linked to priority logistics corridors; and (iii) strengthen decentralized road management. Summary Status of Financing (US$, Millions) Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-85620 11-Dec-2015 12-Apr-2016 08-Jul-2016 28-Feb-2023 50.00 31.47 18.53 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Support to the Subnational Transport Program Project (P132515) II. SUMMARY OF PROJECT STATUS AND PROPOSED CHANGES 1. Project Background. The Support to the Subnational Transport Program (PATS, the Project) was approved on December 11, 2015 and declared effective on July 8, 2016. The original project envisioned a National Program, amounting to US$600 million, US$50 million of which was financed through IBRD loan 8562-PE, US$50 million through an Interamerican Development Bank (IADB) loan, and the remaining through counterpart funding of the Government of Peru (GoP). The Project restructuring processed in June 2021 clarified the project scope to include only those original activities supported by the IBRD loan and exclude the original activities designed to be financed by the GoP and IADB. Based on the restructuring, the total Project cost is US$54.79 million, with US$50 million financed by IBRD and US$4.79 million financed by the GoP. The Project is being implemented by Provias Decentralizado (PVD), the national agency for rural roads and secondary roads in the Ministry of Transport and Communication (MTC), supported by its decentralized offices and in coordination with subnational governments. The Project Development Objective (PDO) is to (i) facilitate sustainable road access of Peru's rural populations to services, (ii) reduce transport costs on rural roads linked to priority logistics corridors; and (iii) strengthen decentralized road management. The Project consists of three components: (i) Component 1: Infrastructure for Integration and Social Inclusion (total cost of US$36.70 million, with IBRD financing US$26.43 million); (ii) Component 2: Rural Road Infrastructure Maintenance (total cost of US$12.89 million, with IBRD financing US$10.08 million); and (iii) Component 3: Decentralized Road Management (total cost of US$5.19 million, with IBRD financing US$4.30 million). 2. Summary of Previous Restructurings. The Project has been restructured three times, including two extensions: i) Restructuring 1: March 10, 2021, to extend the Project closing date to April 4, 2022; ii) Restructuring 2: June 30, 2021, to clarify the Project scope; and iii) Restructuring 3: April 3, 2022, to extend the Project closing date to February 28, 2023. 3. Project Status. The “Progress towards achievement of PDO” as well as the performance of the client on Project Management have been rated as MS over the past 12 months. The “Overall Implementation Progress (IP)” was downgraded to MU in the August 2022 Implementation Status Report (ISR), mainly because of i) delays in road rehabilitation activities under Component 1 which could not be completed by the actual closing date of February 28, 2023; ii) overall delays since the Board approval that led to extensions; and iii) delayed progress in achieving some outcomes in the PDO (see paragraph 6). Currently, the Project is 62.94 percent disbursed, with an undisbursed amount of US$18.53 million. Compared to only seven percent of loan proceeds disbursed at the time of mid-term review in April 2019 (three years after Project effectiveness), PVD has made significant implementation progress since then, despite the COVID-19 pandemic. The undisbursed loan amount is mainly associated with the road rehabilitation under Component 1 that requires land acquisition before starting the construction. 4. Reasons for Implementation Delay. The National Program implementation has experienced delays mainly because the targeted activities (road segments or subprojects) were not prepared at the time of approval but have been gradually identified during the first two years of project implementation. The National Program was designed to upgrade 2,200km of rural roads and carry out maintenance for 5,000km of rural roads within its five-year implementation period. However, the Project was approved without an identified rural road portfolio of specific interventions. The specific road segments (subprojects) for interventions by the National Program supported by the Project were gradually identified through a prioritization process made by GoP. It took two years for the GoP to finalize the prioritization methodology that was act ually used and the identification of specific subprojects for each source of financing. Thus, implementation of interventions started with a significant delay. Since the last extension, the delays have been caused by high staff turnover, the COVID-19 pandemic, and several unsuccessful procurement processes that pushed the works into the rainy season . Together with the overall delays, these factors have affected The World Bank Support to the Subnational Transport Program Project (P132515) negatively the likelihood of significant achievement of PDO indicator 1 “People with access to an all-season road financed by the project” for the PDO (i) “facilitate sustainable road access of Peru's rural populations to services” by the current closing date. 5. Proposed Changes and Rationale. The proposed change in this restructuring is to extend the closing date of the Project to December 31, 2023. By the current closing date of February 28, 2023, the Project would not be fully implemented, and an extension has proven necessary. An extension was requested from the from Ministry of Economy and Finance (MEF) on October 4, 2022. The main justification to consider the request for Project extension is that it would enable the ongoing civil works to be completed or to advance significantly. The PDO would remain achievable and highly relevant for the Country Partnership Framework (CPF) FY23-FY27, supporting HLO2, Objective 3, Enhance the Delivery of Public Services. It would also allow the client to utilize the resource under the Project to prepare a new road project to enhance connectivity between rural production hubs and regional logistics corridors or collection centers, in line with the initial findings of the InfraSAP. 6. Action Plan. The following Action Plan for Project Implementation was agreed between PVD and the Bank: i) cancelation of the subprojects for which the procurement process has not yet started; ii) partial cancelation of the loan; and iii) change of project results indicators to reflect the reduced project scope. A consecutive restructuring will follow to address these changes without changing the PDO. It will also cover outstanding E&S issues and action needed to address them. 7. Status of Audit Reports and Covenants Compliance. There are no outstanding audit reports and all the audit reports received are considered acceptable to the Bank. The Project is not subject to suspension of disbursement. All loan covenants have been complied with. III. DETAILED CHANGES LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 04-Apr-2022, 28-Feb- IBRD-85620 Effective 31-Mar-2021 31-Dec-2023 30-Apr-2024 2023