10651 - Inka Terra, Peru S.A.C.

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Environmental Review Summary

Project Number

10651

Company Name

INKA TERRA PERU S.A.C.

Date ERS Disclosed

Nov 21, 2000

Country

Peru

Region

Latin America and the Caribbean

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Dec 22, 2000
Signed : Jan 25, 2001
Invested : Jan 31, 2001

Sector

Tour Operators (i.e., Arranging and Assembling Tours)

Industry

other

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

1 Inka Terra S.A.C Cusco Amazonico is a Peruvian hotel operator that specializes in properties oriented towards eco-tourism. The Company presently owns and operates two properties: the 85-room Machu Picchu Pueblo Hotel (MPPH), which is located in the town of Aguas Calientes near the ruins of Machu Picchu, and the 43-room Cusco Amazonico Pueblo Hotel (CAPH), which is located in the Madre de Dios forest near to Puerto Maldonado in South-Eastern Peru. Inka Terra has proposed an US$18 million expansion and restructuring project incorporating the following elements: (i) Expansion of the existing MPPH and the CAPH facilities by 15 and 12 rooms, respectively; (ii) Restructuring of some debt in order to lengthen maturities and improve terms; (iii) Development of two new hotels in Cusco and Puno on the Company''s existing properties at these locations; and (iv) construction of another eco-tourism hotel at Concepcion (also near to Puerto Maldonado) in Amazonia and a mid-level hotel, the Machu Picchu Pueblo Lodge (MPPL), in Aguas Calientes, in order to complement its existing hotels at these locations. The project would be financed in two phases. In the first phase items i and ii will be undertaken. If these are successful, the sponsor will move ahead with items iii and iv. These later activities are unlikely to occur within 2 years and the sponsor will undertake further public disclosure activities (including the release of an updated ERS) at these locations as development occurs.

2 The sponsor has a longstanding (25-year) history of promoting and developing "eco-tourism" facilities in Peru. Initially with the Cusco Amazonico Pueblo Hotel and more recently with the Machu Pichu Pueblo Hotel. The Amazonico site was one of the first eco-tourism lodges to be developed in Peru and has supported a range of ecological research initiatives.

Environmental and Social

5 The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow.

6 Land acquisition process and permitting arrangements: Land at all the project locations has been acquired by the sponsor through willing seller willing buyer arrangements and development will not require economic displacement or resettlement. Adjacent to the Cusco Amazonico Pueblo Hotel, the sponsor has leased a 10,000ha area of forest from the Government of Peru. This area serves as the basis for the eco-touristic experiences available at the site.

7 The sponsors’ development plans for both the MPPH and MPPL facilities need to be viewed in the light of development constraints that are evident in the town of Aguas Calientes. The town has experienced rapid urban growth to service the tourism industry for Machu Pichu in the past 5 years. Provision of environmental services (solid waste management and liquid effluent treatment in particular) in the town is poor and there is little control of built form or density. The town is a special zone within the Plan Maestro del Santurio Historico de Machu Pichu area and earlier proposals to set a zero growth plan for Aguas Calientes have been dropped in favor of proposals to direct and guide new development so that minimum standards and building codes are met (including limiting new development to two story buildings and requiring waste water treatment facilities for all new build).

8 Tourism at Machu Pichu is growing at between 15-20% pa and much of the visitor pressure is currently compressed into a short period (4-5 hours between 10 am and 3 p.m.) every day, since this corresponds to rail timetables. There is growing recognition that spreading the visitor load throughout the day and developing alternative activities for visitors (additional walks/trails etc) will help to spread visitor pressure and could reduce impacts (provided additional sites and activities are managed appropriately). The commitment to spread the load is reflected in the Plan Maestro del Santuario Historico de Machu Pichu and was re-iterated in meetings held with INC and INRENA. The sponsor''s proposal sits well with this approach to the carrying capacity questions at Machu Pichu and Aguas Calientes. Increasing the time that tourists spend at Aguas Calientes will allow them to access the site "off-peak" and also allow them to pursue other activities. The sponsor is working with municipal authorities and others to improve the development and management of Aguas Calientes and has been a longstanding advocate for better and more proactive environmental management in the town.

9 The sponsor will provide written confirmation that development planning permits have been obtained for the MPPH (and other sites) as a condition of IFC investment.

10. Impacts to cultural heritage: Risks to cultural heritage are negligible except for the MPPH/MPPL site (where indirect impacts from increased visitor pressure on the Citadel at Machu Pichu and other nearby Inka sites need to be considered) and the Cusco hotel (which will be constructed in a Spanish colonial building in the old town of Cusco). Indirect impacts to cultural (and natural) heritage arising from the presence of more tourists visiting Inka sites (including the Citadel at Machu Pichu, but also Winay Wayna and new paths/trails that will be opened up) should not result in significant impacts - since the sponsor has been working with both INC and INRENA in the development of trail protocols and management systems that should allow adequate control of impacts to natural and cultural heritage. Nevertheless, IFC will require that environmental and cultural heritage aspects of new paths are monitored and that details are provided annually to IFC. The Cusco site will be redeveloped in a fashion that will ensure compliance with WBG environmental requirements (including that for Cultural heritage) and detailed plans have been prepared for construction activities and management. These have been discussed with INC and municipal authorities and formal approval from INC has been granted.

11 Direct and indirect impacts to natural habitats: Expansion of existing facilities and development of new sites will not have a direct effect on significant areas of natural habitat. However several of the sites lie close to areas of ecological significance and consideration has been given to potential indirect impacts (from tourist activity, sourcing of construction materials etc) throughout the sponsors proposed operations.

12 At Cusco Amazonico, extensive research (over a 25-year period) has not identified that the activities of tourists has had a significant impact beyond the immediate area of the lodges (c 10ha out of a total site area in excess of 10,000ha). As part of the project, IFC and the sponsor will seek to identify ways in which the management of the forest at this site can be enhanced to maximize opportunities for applied research into rainforest ecology and economics and also to increase educational and learning opportunities for visitors.

13 At the Puno site (adjacent to Lake Titicaca) particular care will need to be taken in the development of the hotel to avoid impacts on the ecology of Lake Titicaca. The sponsor will provide further details of protection and mitigation measures that will be undertaken prior to development and as a condition of IFC investment in this facility. Similar requirement will be put in place for the Concepcion site (which lies close to the Tambopata- Candoma Reserved Area, adjacent to Bahuaja-Sonene National Park).

14 All wood construction materials for eco-tourist lodges are obtained from legally managed concessions. Other locally sourced materials (e.g. palm thatch) are sustainably collected from the rainforest by the sponsor.

15 Water supply and liquid effluent treatment and disposal: Water supplies for the hotels will be drawn from a variety of sources (Table 1) and development of these will not have adverse effects on other users or the environment. Wastewater treatment will be through septic tanks or municipal treatment - depending on the location of the hotel. Septic tanks are in use at both the MPPH and CAPH sites and are functioning adequately and in compliance with WBG requirements. Wastewater treatment options for the Puno site will receive particular attention given the sensitivity of the receiving water body (Lake Titicaca) and IFC will require detailed plans of waste water treatment proposals prior to commitment of funds for this site.

16 Solid waste disposal arrangements and adequacy: Solid waste (comprising glass, plastic, card and organic material) will either be disposed of in landfills within hotel grounds, or (where possible) at municipal landfills. At Aguas Calientes (where there is no landfill), the sponsor collects and bags all waste for transport to the municipal landfill at Cusco. The sponsor also undertakes litter collection and environmental education work in Aguas Calientes to reduce the overall volumes of solid waste that are present in the town.

17 Air emissions and the use of CFCs: Electricity will either supplied via the municipal grid (MPPH/MPPL/ Cusco and Puno) or generated on site via small diesel generators. Emissions from this source are insignificant. The sponsor''s longer-term plans include the use of solar energy at Cusco Amazonico (and possibly Concepcion). There is no use of CFCs in any of the hotel properties.

18 Fire protection and life safety, including emergency response plans: Fire and Life safety adequacy at the MPPH and CAPH sites will be reviewed by third parties who will consider: fire risks, egress, detection and alarm systems, compartmentation, fire suppression and control systems and emergency response plans. This work will be reviewed by IFC and any recommendations will form the basis of a Corrective Action Plan. The timely implementation of the CAP will for a condition of disbursement for IFC investment. Similar reviews will be undertaken, and requirements made for other sites that will be developed in the project.

19 General employee health and safety and training programs: Preferential employment will be given to local people at all sites (80% of employees at the MPPH are from the immediate area) and many staff have worked their way up in the organization to take on management and supervisory roles and functions. The sponsor has a good track record of training and staff development and it is clear that there is a good relationship between the sponsor and employees. At the MPPH, on site accommodation for staff from outside the Aguas Calientes area is excellent and the sponsor provides a full range of health and medical insurance.

20 Potential for the implementation of an environmental management program and potential business opportunities through certification: Inka Terra does not have a formal environmental management system (although staff would appear to be well versed in the philosophy of the company and its interests in ecologically sound development). The sponsor has published a guide to orchids that are found in the Machu Pichu area. There are opportunities to be more proactive in both environmental management (e.g. through advice on water use in hotel rooms) and more widely in relation to the sensitization of tourists to aspects of cultural and natural heritage. The sponsor will pursue these and also the possibility of certification under one of the hotel sustainable certification schemes in the longer term.

Table 1 Water source and treatment

Location	Source of Water	Treatment Proposals
Machu Pichu Pueblo Hotel	Spring waters adjacent to the hotel	A series of septic and percolation tanks. These are working adequately for existing components of the hotel
Cusco Amazonico Pueblo Hotel	Water from the Rio Madre de Dios. Water is treated prior to use and all potable waters are brought in from Puerto Maldonado	A series of septic and percolation tanks. These are working adequately for existing components of the hotel
Machu Pichu Pueblo Lodge	Spring waters adjacent to the hotel	A series of septic and percolation tanks.
Cusco	Municipal supplies	Municipal treatment
Puno	Artesian well,	Waste water treatment plant - details to be approved by INRENA and municipal authorities in due course.
Concepcion	Water from the Rio Madre de Dios. Water is treated prior to use and all potable waters are brought in from Puerto Maldonado	A series of septic and percolation tanks will be installed

Conclusion & Monitoring

22 IFC will evaluate the project''s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) prepared for the project covering: ongoing performance of project-specific environmental, health and safety and social activities Periodic site supervision visits will also be conducted and IFC will review the final plans and approvals of all new facilities prior to development.

This Environmental Review Summary (ERS) is prepared and distributed in advance of the IFC Board of Directors' consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Any documentation that is attached to this ERS has been prepared by the project sponsor or in conjunction with the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content. The following ERS is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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