___________________________________________________________________________

2008/SOM3/IEG/SEM2/014

Peru: Infrastructure Project for the Integration of Asian Economies and South America

Submitted by: Peru

Seminar on Recent Trends on Investment Liberalization and Facilitation in Transport and

Telecommunication Infrastructure Lima, Peru

13–14 August 2008

Infrastructure project for the integration of

Asian economies and South America

PERU:

Carlos Puga Pomareda

Viceministro de Transportes

Ministerio de Transportes y Comunicaciones -PERU

INVESTMENT IN TRANSPORT INFRASTRUCTURE

• Investment in transport infrastructure is considered an essential element for the support and development of economic and social activities. The following reasons briefly explain the importance of this type of investment.

– Inclusion of new productive areas in the domestic economy. – Promotion of productive, commercial and service-related activities. – Improvement of the homeland integration and security.– Streamlining commercial exchanges with the rest of the world.

• Meet the requirements of the population’s productive and social activity.

• Standardize the decentralized regional development.

• Foster our country’s international trade development within the framework of an integration process.

GENERAL OBJETIVES

1. CURRENT SITUATION OF 1. CURRENT SITUATION OF INFRASTRUCTURE IN PERUINFRASTRUCTURE IN PERU

21%21,987 102,887 TOTAL

8%4,560 60,000 LOCAL ROAD NETWORK

13%2,495 19,049 DEPARTMENTAL ROAD NETWORK

63%14,932 23,838 NATIONAL ROAD NETWORK

Road Network needs served

(%)

Intervention by the MTC

(km)Existing Road Network (km)Type of road network

SITUATION OF THE ROAD NETWORK TO MARCH 2008

ROADS

Concentration of cargo and operational inefficiency

PORTS

Maritime Port of Callao

49%

Port of Chimbote6%

Port of Paita7%

Others19%

Source: SUNAT

Port of Pisco19%

VOLUME OF TRADE ACCORDING TOTHE CUSTOMS DEPARTMENT, 2007 1/

13

52 47

0

10

20

30

40

50

60

Callao Cartagena (2006) Valparaiso (2005)

Source: MTC

CONTAINERS MOVEMENT PER VESSELAND HOUR, 2007

There is still much to do

GENERAL PANORAMA

Road Network 82 6 697 6 829Ports 560 135 695Airports 63 80 143Railroads 0 17 17

Total 705 6 929 7 684Fixed teleph. lines 595 589 1 184

Mobile teleph. lines 2 151 1 299 3 449

Total 2 746 1 888 4 633

INVESTMENT GAPS IN PERU(US$ million)

Transport

Communications

Source: IPE & ADEPSEP, 2005

Lima Provinces Total

INFRASTRUCTURE QUALITY RANKINGIN LOGISTIC ASPECTS, 2007 1/

(Position)

57

53

49

47

34

0 10 20 30 40 50 60

Peru

Mexico

Brasil

Argentina

Chile

Source: World Bank1/ Based on a sample of 150 countries

HOW MUCH DOES POOR INFRASTRUCTURE COST?

Roads

Ports

Airports

COST OVERRUNS DUE TOLACK OF INFRASTRUCTURE

(US$ million)

Source: IPE, CIUP, ADESEP

0

128

16

188

26

28

188

154

44

Lima Provinces Total

Total 144 242 386

AVERAGE LOGISTIC COSTSIN PRODUCT SALES VALUE (2004)

8,59,09,5

18,020,0

23,024,0

26,027,0

32,0

0,0 5,0 10,0 15,0 20,0 25,0 30,0 35,0

SingaporeOCDE

USAChile

MexicoColombia

Latin AmericaBrazil

ArgentinaPeru

Source: Guasch 2004

2. HOW ARE WE DEALING WITH THIS 2. HOW ARE WE DEALING WITH THIS SITUATION? SITUATION?

ACTION PLAN OF THE MINISTRY OF TRANSPORTATION AND COMMUNICATIONS

• Focus on the development of a multimodal transport system. • Granting every potential project to be

privatized for concession. • Provide better solutions to improve

infrastructure access. • Outsource roads maintenance works. • Decentralize roles for a higher participation of regional and local

governments. • Improve regulations.

Ultimate goal:A more integrated country

PORTSPORTS

Important Sea Interconnection

New Containers Terminal (Southern

Zone) ProjectPROJECTS COMMENCEMENT

OF WORKSCOMMITTED INVESTMENT

CONCESSIONAIRE ORIGIN

New ContainersTerminal (Southern

Zone)

Awarded for the design,

construction, operation and maintenance

of a new containers terminal

April 2008

US$374 million:US$305 million in the first 3-month stage;

US$257 million in the second stage, and US$171 million for

additional investment

Consorcio Terminal Internacional de Contenedores (P & O Dover / Dubai Ports and Uniport)

England/ the United Arab Emirates-Peru

El Callao Port

Terminal

Awarded for the acquisition

of 4 gantry cranes to be

installed between the end of 2008

and the beginning of

2009

2nd Semester 2008

US$24.6 million for the acquisition of 2

pier cranes and US$4.8 million for the acquisition of 2

yard cranes

Shangai Zhenhua Port Machinery and Consorcio Lamlar-Triton

China -Sweden / Finland

PORTS

Fuente: EmpresasElaborabión: El Comercio

LIMA

COMING NEXT…

PHASE I (2009-2010)

PHASE II (2021)

PHASE I: REQUIREMENTS

2009-2010• New Containers Terminal• Construction of a 300m berth.• Construction of a 12ha containers

yard. • Two pier gantry cranes.• Four yard cranes • Additional equipment• Dredging works (13m)• Maintenance and operational works

are only conducted at the existing pier.

• Estimated investment: US$115million

PHASE II: ON DEMAND

PORT TERMINAL OF PAITA

PHASE I (2009-2010)

PHASE II (2021)

PHASE I: REQUIREMENTS

Repair and upgrading works of 350m at the existing pier for the implementation of a Containers Terminal. Upgrading works at the warehouse zones for constructing a 12ha containers yard.Two pier gantry cranes. Two yard cranesTwo stackersAdditional equipmentDredging works (13 m)Maintenance and operational works are only carried out at the rest of the pier. Estimated investment: US$80 million

PHASE II: ON DEMAND

PORT TERMINAL OF GRAL. SAN MARTIN

ROADSROADS

Objectives:

• Longitudinal road axes

• IIRSA

Puno

Cusco

Cerro de Pasco

Cajamarca

Piura

Huaraz

Ayacucho

Huancayo

Trujillo

Arequipa

Lima

Includes maintenance works.

Road Concessions Program Km

Investment (USD million)

Total estimate 4138 2200Work Progress (2007) 418 434Projection for 2008 397 339

i. National Road Axes

• Granted in concession/ supplementary credit

Longitudinal road axes

IIRSA

Peru Project

Work progress (2007)

TOTALGOALKms *

INVESTMENT million S/.

2006 - 2011 5,184 10,465

*CONSTRUCTION, UPGRADING AND REHABILITATION OF ASPHALT PAVED ROADS (PUBLIC AND PRIVATE INVESTMENT)

Goal for 2011:

RAILROADSRAILROADS

Private initiative:

Peru- Brasil railroad line (FETAB)

• Length: 1411 km (inside the Peruvian territory)

• Investment: US$4500 million

Upcoming facts…

RAILROADS

Railway Project in the Midsouth of Peru

• Length: 1480Km

• Estimated investment: US$1000 million

• The potential development of the project

is linked to a variety of mining projects

currently undertaken, including

Huancabamba, San Juan de Chacña

(Apurimac), Las Bambas (Apurimac).

Coming next…

RAILROADS

AIRPORTSAIRPORTS

Jorge Chavez International AirportGranted in 2001 for a 30 year-term. Estimated investment: US$1214 million in

the long term. Investment to 2007 from the beginning of

the concession period: US$182 million.Projected investment for 2008:

US$62.5 million, General Sales Tax included. Investment made to March 2008: US$2.9 million.

(Based on information provided by the Supervisory Organization for Infrastructure Investment in Public Transportation (OSITRAN) )

AIRPORTS

Regional airports- First group (Northern airports including the Pisco Airport)

– Investment: US$30 million for the first three years (US$120 million in the long term)

– Investment for 2008: US$13 million – Granted for a 25-year concession term. – Concessionaire: Aeropuertos del Perú (GBH-

Swissport Aeropuertos).

Coming next…

Second group of airports to be granted– Estimated investment: US$157 million in the long term– Estimated award: 4th trimester of 2008– A 25-year concession term

AIRPORTS

TACNA

MOQUEGUA

PUNO

AREQUIPA

CUZCO

MADREDE DIOS

AYACUCHO

HUANCAVELICA

HUANCAYOLIMA

PASCO

HUÁNUCO

UCAYALIANCASH

TRUJILLO

CAJAMARCA

AMAZONAS

IQUITOS

SAN MARTÍN

PIURA

CHICLAYO

TUMBES

APURÍMACICA

Granted

Under concession process

TUMBESAIRPORT

AIRPORTTALARA

AIRPORTPIURA AIRPORT

CHACHAPOYAS

AIRPORTCHICLAYO

AIRPORTTRUJILLO

AIRPORTCAJAMARCA

AIRPORTTARAPOTO

AIRPORTANCASH

AIRPORTPUCALLPA

AIRPORTIQUITOS

JORGE CHAVEZINTERNATIONAL AIRPORT AIRPORT

PUERTOMALDONADO

AIRPORTAYACUCHO

AEROPUERTONASCA

AIRPORTAREQUIPA

AIRPORTTACNA

AIRPORTJULIACA

AIRPORTAPURÍMAC

A COMPREHENSIVE AND SIMPLIFIED A COMPREHENSIVE AND SIMPLIFIED VIEW OF FOREIGN TRADEVIEW OF FOREIGN TRADE

A comprehensive and simplified view of Foreign Trade

Modernization of the JC Inter-

national Airport

Double runway

Investment:

US$1,214 million

Logistic Activity

Zone

Studies are already underway

Modernization of the Port Terminal of

CallaoNew Containers Terminal

(Southern Zone) Equipment

ENAPUInvestment: US$1,000 million

Multim

odal

Developm

en t

Scheme location of functional areas

The presence of a LAZ in the logistic system willreduce the current cost of stock management,

estimating the possibility of generating saves of upto US$135.33 million annually.

INTERMODAL TRANSPORT SERVICE INTERMODAL TRANSPORT SERVICE PLANNING PLANNING

PORTS

WATER TRANSPORT

AIRPORTS

AIR TRANSPORT

ROADS AND RAILROADS

LAND TRANSPORT

INFRASTRUCTURE

TRANSPORT SERVICES

REGULATION

INFORMATION

REG

ULA

TIO

N

IN

FO

RM

ATIO

N

LOGISTIC CENTERS

INTEGRAL LOGISTICS

INTERMODAL TRANSPORT PLAN (PHASE 1)

INTERMODAL TRANSPORT PLAN (PHASE 2)

Analyse the characteristics of the Peruvian logistic system on a comprehensive basis.

Propose a series of actions aimed at fostering the sustainable development of a diversified value-added logistic services supply in the country.

Improve the competitiveness of the economy and the efficiency of transport infrastructure.

DEVELOPMENT PLAN FOR TRANSPORT LOGISTICS SERVICESOBJECTIVES:

DEVELOPMENT PLAN FOR TRANSPORT LOGISTICS SERVICES

• Propose comprehensive solutions to promote a diversified value-added logistic services supply in the country while meeting the whole productive sector needs in order to contribute to`the competitiveness of the economy and efficiency of the existing and projected transport infrastructure.

DEVELOPMENT PLAN FOR TRANSPORT LOGISTICS SERVICES

SERVICES DEMAND• Identification of productive segments and associated

logistic chains.• Location of production site and preliminary

identification of transport means; establishment of an influence area for logistic chains.

• Identification of the logistic chain structure: length, specialization and value.

• Demand sorted by logistical parameters on the basis of the national and international market location.

• Market trends and impacts on the logistic chain performance.

DEVELOPMENT PLAN FOR TRANSPORT LOGISTICS SERVICES

SERVICE OPERATORS• Inventory of transport and logistic

operators. • Establishment of operation costs. • Regulation: Factors restraining the

development of the logistic supply from the perspective of operators.

CITYCITY--PORT/ AIRPORT/ LOGISTIC PORT/ AIRPORT/ LOGISTIC ACTIVITY ZONE RELATIONSHIPACTIVITY ZONE RELATIONSHIP

General Objective

• Size freight transport services geared to the import/export of goods among the port of Callao, Jorge Chavez International Airport, and the logistic activity zone while quantifying future needs (in the short, medium and long term).

Scope Space

The study considers that cargo flows are directly carried through the airport and port of Callao (arrival/ dispatch of cargo), either from the outside of the Metropolitan area or inside.

Puerto

Aeropuerto

LEYENDAÁrea del Puerto y Aeropuerto

Flujo de Carga que ingresa/sale de Lima y se relaciona con el Puerto/Aeropuerto del Callao

Flujo de Carga al interior del Área Metropolitana que se relaciona con el Puerto/Aeropuerto del Callao

Specific Goals• Model cargo flow behaviour from the Port, Airport of Callao and Logistic

Activity Zone to the same destinations, in the short (2007-2009), medium (2010-2014) and long (2015-2027) term.

Identify, evaluate and emphasize a series of urban road infrastructure projects inside the Metropolitan Area of Lima and Callao. Such projects will be of great importance for an efficient cargo flow traffic from the Port and Airport of Callao to the same destinations.

• Design proposals for alternative funding for the implementation of projects identified.

• Generate proposals for the efficient operation of freight transport system in the Metropolitan Area of Lima and Callao.

Southern Peru Logistic Platform Southern Peru Logistic Platform ManagementManagement

SOUTHERN PERU LOGISTIC PLATFORM MANAGEMENT

OBJECTIVE

• Design a logistic platform in the south of Peru, consisting of value-added logistic services and promoting diversified services supply for producers of the influence area. This platform will be potentially managed through a public-private partnership.

A referential framework of the study

PERÚ

BOLIVIA

CHILE

Oruro

Sucre

Ilo

Juliaca

Tacna

Lima

Arica Pto. Suarez

Matarani

Puno

MIAMI / USA / ASIA

La Paz

Santa Cruz

ROTTERDAM / EUROPA

EUROPA

La Libertad

MoqueguaCochabamba

Trujillo

Arequipa

EUROPA / ASIA / USA

EUROPA / ASIA / USA

PERÚ

BOLIVIA

CHILE

PERÚ

BOLIVIA

CHILE

Oruro

Sucre

Ilo

Juliaca

Tacna

Lima

Arica Pto. Suarez

Matarani

Puno

MIAMI / USA / ASIA

La Paz

Santa Cruz

ROTTERDAM / EUROPA

EUROPA

La Libertad

MoqueguaCochabamba

Trujillo

Arequipa

EUROPA / ASIA / USA

EUROPA / ASIA / USA

Fuente: IIRSA 2006, análisis logístico del Eje Andino

Foreign trade has experienced an increasingly dynamic process in Peru and all over the world. However, the low competitiveness of the economyis a main problem, partly due to the high logistic costs- one of the highest in the region.

1

2

9

1416

19

2325

32

USA CHILE MEXICO COLOMBIA BRASIL ARGENTINA PERU

Fuente: Banco Mundial (2001)

Logistic cost as % of the sales value

High logistic costs arise from an inefficient transport services operation resulting from the existence of several operators competing for small sales volume. This situation, consequently, gives rise to undervalued rates not allowing for covering the operational costs.

A referential framework of the study

A solution found in developed countries to counter inefficiencies throughout the logistic chain is the creation of logistic platforms, partly promoted and managed by the public sector. These platforms foster value-added logistic services.

3

4

Due to the high incidence of logistic costs in setting prices and providing a qualified basic supply, it is necessary to promote mechanisms for the improvement, diversification and specialization of logistic services supply, thus developing an increasingly efficient system.

PRODUCTORES

DISTRIBUIDORES

COMPRADORES

CONSUMIDORES FINALESPROVEEDORES

FUENTES DE SUMINISTRO

ORIGIN

INFRAESTRUCTURA REGULACIÓN

SERVICIOS INFORMACIÓN

Supply

ProducciDistribuci

Empresa focal

Ventas

VALOR AGREGADO

Producció n, Almacenaje, Transporte, Costo de inventario, Trá mites documentarios

Trámites y desembarque en puerto de destino

Transporte y distribución

AGREGACIÓ N DE COSTOS

Posición en

tiempo y lugar

para la entrega

Producción

Transporte y tránsitoInventario de

productos terminados

Transporte y tránsito

Trá mites y embarque en el puerto de origen

Necesidades del Mercado:

• Menor Costo• Menor Tiempo• Mayor Calidad• Má s Flexibilidad

DESTINATION

Production Distribution Sales

• What are the most important productive sectors?

• What is the most important strategic role to be fulfilled by each sector?

• What type and volume of cargo is considered?

Key parameters for providing a strategic definition of the logistic platform

Sectors

• What areas and markets are part of the logistic platform? (Government, national and international- CAN- agencies)Influence areas

• What kind of transport modes can provide access to the platform?(Proximity to ports, airports, railroads and roads)Mode of access

• How developed are logistic services in the region? (Logistic operators, carriers)

• Is there any level of competence of other logistic nodes? Others

• Location

• Types of logistic platform

• Functional approach

Strategic approach

Geographical Approach

Influence area of the Southern Bioceanic Corridor, connecting the region of Arequipa with the Andean livestock plateau that surrounds the Titicaca’s lake (Juliaca and Puno), Bolivia, Cuzco, Madre de Dios and Brazil. Composed, additionally, of a Coastal-Southern agro-industrial corridor, consisting of valleys and pampas from Arequipa, Tacna and Moquegua.

Logistic development in Peru

• Bordered by the Pacific Ocean at the confluence of long integration axes between North and South America, and the west coast of the United States and Asia.

• Regional production and distribution centers of cargo, with an economic activity of their own, properly located in relation to the main Andean production and consumption centers.

• Institutional capacity provided to lead logistic processes.

• Consolidated Plans such as the National Strategic Plan for Exports and the Peruvian Port Development Plan.

• Large profitable companies and an important business sector with the capacity for undertaking high investment logistic projects.

Strengths

Main Integration

and Development Axes

Potential Axes

Frontier passMain ports

Economic poles

TELECOMMUNICATIONSTELECOMMUNICATIONS

Goal for 2011Up to March 2008

Coverage of the (fixed / mobile) telephone service.

Up to June 2006

YES (815 DISTRICTS)

NO (1017 DISTRICTS)

YES (1,423 DISTRICTS)

NO (409 DISTRICTS)

DESPITE THE EXPONENTIAL GROWTH, THERE ARE STILL PLACES WHERE WE CAN CONTINUE GROWING

200 000

400 000

600 000

800 000

1 000 000

2005 2006 2007 2008 2009 2010

Estimated growth of the broadband Internet connections

EstimatedHistorical

TELEPHONE LINES IN SERVICE(Thousands)

0

4 000

8 000

12 000

16 000

20 000

2001 2002 2003 2004 2005 2006 2007 2008*1 500

1 750

2 000

2 250

2 500

2 750

3 000

Fixed Mobile

Source: MTC* Up to March.

Mobile T. Fixed T.

Why should there be investments in the

communication sector?

Favorable legal framework for investment Transparent and non-discriminatory access when rendering the telecommunication public servicesPromotion of free competition. Reduction of the bureaucratic barriers for the investmentsFreedom for the remittance of royaltiesConcessions granted for a 20-year term, thus guaranteeing the return of investment

Why should there be investments in the

communication sector?

Favorable legal framework for investment Transparent and non-discriminatory access when rendering the telecommunication public servicesPromotion of free competition. Reduction of the bureaucratic barriers for the investmentsFreedom for the remittance of royaltiesConcessions granted for a 20-year term, thus guaranteeing the return of investment

EVOLUTION OF THE TOTAL DIRECT FOREIGN INVESTMENT AND THE COMMUNICATIONS SECTOR

1. Rural Telecommunication Projects.

2. Promotion of private investment for infrastructure development.

3. Improvement of the regulatory framework.

POLICIES TO ACHIEVE THE GOALS OF THE COMMUNICATIONS SECTOR

Rural Broadband I1928 towns. Investment: US$ 8.8 million.Under implementation. This project will end in March 2009.

Rural Internet1050 towns. Investment: US$9.4 million. Awarded: July 2008.

Broadband for Isolated Towns3852 towns. Investment: US$45.6 millionEstimated award: September 24, 2008.

Rural Broadband II2120 towns. Investment : US$13.6 millionEstimated award: 2nd semester of 2008.

Rural Broadband Service in San Gaban-Puerto Maldonado89 towns. Investment : S/.10 million

Broadband for the development of the Valleys of Apurímac and Ene Rivers311 towns. Investment: S/.11 million

RURAL TELECOMMUNICATION PROJECTS (FITEL)

2006 20112009

RURAL TELECOMMUNICATION PROJECTS (FITEL)

Promotion of Private Investments and Competition

Bidding of Bands:

1. 800 MHz and 1900 MHz BandAwarded in July 20071,000,000 new lines in service for 5 years300 new districts with coverage

2. 900 MHz BandAwarded in December 2007Commitment: 700,000 new lines in service.

350,000 lines in Lima350,000 lines in the provinces.

3. 450 MHz BandAwarded in January 2008Commitment: 501, 000 new lines in service.

4. Next biddingsWIMAX : 2500 - 2692 MHz Band1900 MHz : Fourth mobile operator

US$920 million in private investmentUS$920 million in

private investment

COST OVERRUN FOR INFRASTRUCTURE DEVELOPMENT• Permits subject to the discretion of the central government and

regional and local governments.• Regime of concession per service.• Lack of regulations for sharing infrastructure.• Lack of promotion of rural areas. COST OVERRUN IN THE MOBILE INDUSTRY.• Tariff of terminals and antennas. • RoyaltyTax that penalized the growth.LACK OF COMPETITION IN THE MOBILE AND LONG DISTANCE

SERVICES.• Pre-selection of the dominating operator by default.• Lack of numerical portability.ADMINISTRATIVE MANAGEMENT • Bureaucratic proceedings for the homologation.• Excess of proceedings for equipment entrance admission.• Cost of the proceedings without support.• Poorly modern structure of the Vice-ministry.• Duplicity of functions between FITEL (OSIPTEL) and MTC

• Act Nº 28737: Act that establishes a unique concession for rendering telecommunication public services.

• Act N° 29022: Act for the expansion of telecommunications infrastructure and its Regulations.

• SD Nº 049-2006-MTC: New Regime of the Royalty Tax for mobile public services.

• SD Nº 024-2007-MTC: Regulation that makes it possible for ducts and chambers to be built for the installation of optical fiber in highways.

• SD N°003-2007-MTC: Guidelines to develop and consolidate the competence and expansion of public services.

• SD N° 040-2007-MTC: Conditions for the implementation of numerical portability in telecommunication public services.

• Project: “Regulatory framework for the promotion of the development of telecommunications in Rural Areas and Places Preferably of Social Interest.”

Adopted MeasuresPrevious Regulatory Situation

PROMOTION OF EXPANSION AND COMPETITION

1. Numerical portability

2. Establishment of technical specifications and implementation of telecommunications equipment

3. New classification of services

4. New regulatory framework for Digital Television

5. Approval of a bill for the development of telecommunication services in rural areas.

WHAT COMES NEXT?

CONCLUSIONSCONCLUSIONS

• In the two last years we have accomplished the following: –Cargo traffic volume commercialized through the Port of Callao increased 15%.

–Flow of 3-7 -axle heavy vehicles, registered by toll stations nationwide, grew 23%.

–Regular passengers air traffic services nationwide increased 24%.

• The Peruvian State is willing to work together with the private sector so as to improve our country’s competitiveness. Besides, the local and regional governments are given much more importance: local highways, for example.

• The work scheme is differentiated according to the type of infrastructure to be developed.