25931 - Peru OEH II

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Environmental & Social Review Summary

Project Number

25931

Company Name

PERU OE.H. S.A.

Date ESRS Disclosed

Apr 19, 2007

Country

Peru

Region

Latin America and the Caribbean

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Jun 14, 2007
Signed : Jun 15, 2007
Invested : Jan 10, 2008

Sector

Resort Hotel (Including Lodges)

Industry

Tourism, Retail and Property

Department

Regional Industry MAS LAC & EUR

Project Description

Peru Orient Express Hotels (POEH or the company), an existing IFC client, has approached IFC to provide a loan of up to $13.0 million to help the company:

- undertake a $19.84 million refurbishment of two of its properties in Peru, the Nazarenas Convent in Cusco and the El Parador del Colca Lodge in the Colca Valley; and
- refinance existing loans associated with the Machu Picchu Sanctuary Lodge (MPSL) and the Hotel Monasterio.

- Nazarenas Convent

POEH has a concession agreement in place to operate the 17th century Nazarenas Convent sits on 1.3 acres adjacent to the Hotel Monasterio in Cusco and will be transformed into a 55-room all-suite hotel. Each of the Nazarenas’ rooms will be sizable and unique in design. The property will contain guestrooms, a small spa and pool area and guests will use the reception, restaurants and other central facilities of the Monasterio.

- El Parador del Colca

This seven (7) room lodge will be refurbished into a 20 room property and branded and marketed as an OEH property. The Colca Lodge is located in the Colca valley, which is one of the most scenic regions in Peru. The Valley has experienced a rise in tourist numbers, with travelers enjoying the many outdoor activities and the majestic, giant condors at Cruz del Cóndor looking over the Colca Canyon.

Overview of IFC's Scope of Review

This project involves the refurbishing of two existing properties, the Nazarenas Convent in Cuzco and the Parador del Colca Lodge in the Colca Valley, with some additional new construction at the Colca Lodge. The Nazarenas Convent property was appraised as part of a prior project, Peru OEH, though IFC did not, in the end, provide financing for it because the refurbishment was not undertaken at that time. The Nazarenas Convent property is adjacent to the Monestario Hotel in Cusco, which has been subject to IFC’s supervision since the signing of the loan agreement for the Peru OEH project in 2001. The current project will also involve the refinancing of existing loans associated with the prior Peru OEH project, which includes the Machu Picchu Sanctuary Lodge (MPSL) and the Monasterio Hotel in Cuzco. No new construction will take place as a result of the refinancing, and, as noted, these hotels have been under IFC’s social and environmental supervision. The Colca Lodge is the only element of the new project that had not been previously subject to IFC social and environmental appraisal and supervision. The Colca Lodge was originally built as part of an ecotourism venture and was subsequently purchased by OEH.

In addition to the visits of the IFC technical specialist to both properties, the Peru OEH provided documents describing the physical aspects of the project, and written answers to the questions of the project social and environmental specialist. The documents describing the physical aspects of the project included:

- the “Memoria Descriptive del Proyecto Instalaciones” for both the Nazarenas and the Colca project, which contain technical details of the provisions for water supply, wastewater treatment and physical fire safety measures; and
- a copy of the “Resolucion Directoral Nacional No 1191 (July 2006)” from the National Institute of Culture (INC), permitting the refurbishment of the Nazarenas property.

No environmental assessments are required under Peruvian law. IFC has reviewed the latest annual monitoring report (2005) for the current investment in the Hotel Monasterio and the Machu Picchu Sanctuary Lodge.

E & S Project Categorization and Applicable Standard

IFC’s Performance Standards on Social & Environmental Sustainability will apply to this project. IFC’s environmental and social due diligence indicates that the investment will have impacts that must be managed in a manner consistent with the following Performance Standards (PS):

- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS8: Cultural Heritage

The project appraisal also assessed the potential impacts in light of the following Performance Standards:

- PS5: Land Acquisition and Involuntary Resettlement
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management, and
- PS7: Indigenous Peoples

With the exception of the Nazarenas Convent, the project sites are all on existing hotel properties. The Nazarenas Convent has been uninhabited for several years. Thus, PS5 does not apply. Nor does PS6: The Nazarenas Convent and the Hotel Monasterio are located in urban areas. The MPSL is an existing property, but the gardens have been completely replanted with indigenous species to better help the hotel blend into its environment. The Colca property was designed as an eco-lodge and the principle of minimal disturbance of the natural habitat will be maintained in the hotel expansion. Finally, while there are Indigenous Peoples living in the general area of all properties, none of them are directly impacted by the projects. PS7, thus, does not apply.

As a result of IFC’s appraisal of the project, the following key social and environmental issues were identified:

- Corporate health, safety and environment management systems;
- Stakeholder engagement;
- Fire and life safety; and
- Wastewater treatment.

These issues can be addressed through known procedures, practices and technology. Though IFC’s review indicates that the company needs to create a central environmental and social management function and develop community consultation mechanisms as appropriate, the current management structure has been able to address the fire safety and wastewater treatment issues in its existing projects. Any impacts will be limited to the various project sites and will, in any case, be reversible. Thus, this is a category B project under IFC’s Environmental and Social Review Procedure.

Environmental and Social Mitigation Measures

The IFC appraised the following social, environmental, health and safety issues:

- social and environmental assessment and management,
- community engagement,
- human resources policies,
- energy use,
- water abstraction and conservation in a dry environment,
- wastewater treatment,
- solid waste disposal and opportunities for recycling,
- fire and life safety, and
- cultural heritage

The sponsor has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements:

- host country laws and regulations and
- World Bank/IFC environment and social policies and the environmental, health and safety guidelines.

The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow.

- PS1: Social and Environmental Assessment and Management Systems

The Hotel Monasterio has an Environmental Policy that establishes an environmental management system (EMS). This EMS defines roles and responsibilities, including the identification of an environmental advisor to the General Manager of the hotel and of the Human Resources Manager as the person responsible for the support of the policy. The EMS requires training for all employees and monthly briefings in all areas of the hotel, outlines an internal and external communications plan, and defines a document control procedure. Finally, it calls for the establishment of emergency preparedness and response procedures. The same management system will cover the Nazarenas Convent. Separate, but similar, management systems are and will cover the Machu Picchu Sanctuary Lodge (MPSL) and the Parador del Colca.

IFC has identified two areas where the management system should be improved to meet PS1: the implementation of annual environmental and social action plans and a regular program of community engagement on the environmental and social performance of the hotels. The EMS needs to incorporate the systematic development of action plans to address social and environmental improvements, including the items identified as mitigation measures in this ESRS. The action plans need to then be reviewed and updated on a yearly basis, and progress in completing the actions should be reported to the corporate management. While the operations of the hotels create minimal environmental and social risks for the local communities, the communities would be reassured by the knowledge of the environmental, health, safety and social actions undertaken by the hotels. The primary mechanism for communicating these actions should be the annual environmental and social action plans, which should be made available to the communities. POEH does have a Community Relations office, but it has been primarily engaged with issues outside this project. It could take responsibility for the communication of the action plans to local communities. With these additions, the project will meet the requirements of PS1.

- PS2: Labor and Working Conditions

The existing hotels have an “Internal Work Regulations Handbook” that fulfills most of the requirements of a human resources policy under this Performance Standard. The Handbook does not have a non-discrimination statement, and this will have to be added. The booklet is clear and understandable and is given to each employee. The same terms and conditions of employment found in the book are incorporated into the workers’ contracts.

Peru has ratified and put into law all of the ILO core labor standards, including the freedom of association and the right to bargain collectively. POEH follows national labor laws. The workforce at the hotels is not represented by unions, but POEH management has not and will not discourage workers from joining workers organizations or bargaining collectively. Furthermore, POEH management will not discriminate against those employees who participate in such organizations or seek to participate in them.

The Human Resource Manager is responsible for settling grievances. Grievances may be directly voiced to the manager or during staff meetings where workers are encouraged to make suggestions and ask questions.

The project meets the requirements of PS2.

- PS3: Pollution Prevention and Abatement

- Nazarenas Convent

Peru OEH, in all of its, hotels, has a solid waste management plan that calls for the separation of solid waste streams into organic, inorganic and hazardous components. The organic solid wastes are composted and used either for growing food used in the hotel or for fertilizing the hotel grounds. Solid inorganic wastes from the Nazarenas Hotel will be sent to the municipal waste site in Cuzco. The hazardous wastes, such as batteries and waste oil, are handled by a third party who meets Peruvian standards for handling such wastes.

Wastewater is sent to the Cuzco municipal system, where it is treated to Peruvian standards.

The Nazarenas will have a back-up generator for when power is not available from the national grid. The generator is of small enough size (350 KW) to not be of concern under World Bank Group air pollution guidelines. The company will, however, ensure that the generator is properly maintained. The company will also make sure that the storage tank for the diesel fuel has a wall around it to contain any potential spills and that the transfer of fuel is done in such as way as to avoid spills.

The Nazarenas Convent project will, with the designed measures, meet the requirements of PS3.

- El Parador del Colca

This hotel will separate its waste according to the company’s general practice. Solid inorganic waste will go to Yanque municipal solid waste facility. Hazardous waste is sent to Arequipa, where a third party who meets Peruvian standards for handling such wastes disposes of them.

The hotel will have a wastewater treatment plant that will meet World Bank/IFC standards for effluent to surface waters. The system will include of the effluent with clorine. Some water may be recycled and the inert dry material may be used as fill in roads and paths.

The Parador del Colca will have a back-up generator for when power is not available from the national grid. The generator is of small enough size (350 KW) to not be of concern under World Bank Group air pollution guidelines. The company will, however, ensure that the generator is properly maintained. The company will also make sure that the storage tank for the diesel fuel has a wall around it to contain any potential spills and that the transfer of fuel is done in such as way as to avoid spills.

The Parador del Colca project will, with the designed measures, meet the requirements of PS3.

- Machu Picchu Sanctuary Lodge

The hotel shares its septic tank wastewater treatment system with the toilets associated with the Citadel visitor entrance. The number of visitors has increased from about 1000 per year when IFC first visited the project in 2000 and about 1500 per year now. As a result of the increased number of visitors to the archaeological site, the shared wastewater treatment system has been overloaded. POEH has had funds set aside for the construction of a new wastewater treatment plant since 2001, but has not yet received approval to build the plant from the relevant Peruvian authority, the INC. Until such time as the approval has been received, Peru OEH will take the intermediate steps of adding an aeration system to the existing tank and reducing the time between each pumping out of the septic system.

The project will meet the requirements of PS3 when a new wastewater treatment system has been installed for the MPSL. This installation depends upon the approval of the relevant Peruvian authority.

- PS4: Community Health and Safety

The construction activities and operations of these hotels are unlikely to have impacts on the health and safety of the surrounding communities because they do not involve activities, the use of substances, or disease vectors that would pose risks. All the same, the Parador del Colca, which is sited in a rural area with a traditional population around it, has an employee/contractor Code of Conduct with the respect to the local population. In addition to requiring no involvement in local politics, the Code requires acting respectfully toward local customs, using visible identification, passing along complaints by the local population to the Community Relations office of POEH, putting trash only in designated places – and particularly not ejecting it from vehicle windows - reporting all incidents or accidents to the project supervisor, transporting only people who are employed by the project, and no carrying of firearms in the project nor its neighborhood.

With respect to its guests, Peru OEH has a Food Harmlessness Assurance Program, which carries out periodic (4 to 6 times per year) monitoring of food safety at all of the hotels. This program includes:

- microbiological analysis of high risk food, food handlers and surfaces;
- an inspection of the food during different stages of the food supply chain, including its initial transportation;
- a training course for food handlers and waitstaff; and
- daily monitoring of refrigerator and freezer temperatures.

- Nazarenas Convent

The hotel will draw its potable water from the Cuzco municipal system. According to the monitoring report on the water entering the Hotel Monasterio, which is drawn from the Cuzco municipal system, the water meets World Bank/IFC standards for total coliform, fecal coliform, toxic substances and other parameters. In other words, the potable water is drinkable when it enters the hotel. Tests inside the hotel indicate that the water is above the acceptable limit for cadmium. The company will undertake further tests to understand the origin of the cadmium, to address the problem, and ensure that the Nazarenas does not experience similar levels.

The Nazarenas Convent will have a fire alarm and prevention system that will meet international codes, specifically NFPA, for electrical installations, building construction, fire alarms, fire extinguishers, sprinklers, standpipes and hoses, and electrical installations. As noted the hotel already has emergency response and preparedness procedures. Because of the historic heritage of the building, some accommodation will need to be made in configuring the fire safety systems (see below under Performance Standard 8).

- El Parador del Colca

The hotel is composed of, at most, two story buildings. Guest rooms will not be in a single structure, but spread out in several different small houses. A sprinkler system is generally not required by international standards for this size of structure. Instead, the buildings will have smoke detectors and alarms, and will have a system of fire hoses throughout guest rooms and public areas. The project will be able to meet the NFPA standards for public buildings with this level of risk.

Potable water at the Colca property will come from two natural springs. The water will be filtered using a reverse osmosis system that will remove impurities, salts, bacteria and viruses. The company will periodically monitor the water quality to ensure that this system is functioning properly.

All of the hotels will meet PS4.

- PS8: Cultural Heritage

Three of the four properties – MPSL, Hotel Monasterio, and Nazarenas Convent – have significant cultural heritage aspects associate with them. The MPSL is located just outside the gates to the globally-recognized Machu Picchu citadel and within the boundaries of the UNESCO World Heritage Site that encompasses the citadel. In this case, Peru OEH has had to work closely with the responsible government authority, the Insituto Nacional de Cultura (INC), to ensure that the refurbishment helped the hotel blend in better with its natural and cultural setting. Peru OEH has also been sensitive to the relationship between the Peruvian government and UNESCO, particularly concerning the latter’s concerns about development within the World Heritage Site.

The Hotel Monasterio and the Nazarenas Convent are themselves historic buildings that are recognized by the Peruvian government as part of the country’s cultural heritage. Again, the company has worked closely with the INC to meet stringent requirements. The Hotel Monasterio, as part of the original IFC financing, installed fire safety equipment – sprinklers, detectors, alarms, fire doors, etc. – to meet IFC’s life and fire safety guidelines, but at the same time had carried out these installations in a way that preserved the cultural heritage values of the property. The same approach will be extended to the Nazarenas Convent. Approval for the Nazarenas project required meeting a significant number of concerns raised by the INC.

The National Historic Patrimony Commission has carried out an archaeological inspection of the Nazarenas property and has concluded that no archaeological features rest within the area or construction. A chance finds procedure, however, will be in place to address any discoveries. The procedure will include the notification of INC.

The project hotels will meet the requirements of PS8.

Stakeholder Engagement

The client made publicly available the Environmental Review Summary (ERS) as part of the original Peru OEH project in 2000. That ERS covered three of the four properties that make up this project.

Peru OEH will post copies of this ESRS on its website, and will place copies, translated into Spanish, in public places off its premises, in both Cuzco and Yanque. POEH will also make public locally the annual environment and social action plan at all three places where the project hotels are located: Cuzco, Aguascalientes and Yanque.

For inquiries and comments about the project contact:

Mr. Laurent Carrasset, General Manager
Malecon de la Reserva, 1035, Lima 18 – Peru
Telephone: 51-1-610-4000
Fax: 51-1-241-0579

**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at www.ifc.org/sustainability

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

IFC complaint response is separate from and complementary to IFC’s clients’ project level grievance mechanisms and IFC’s Independent Accountability Mechanism (CAO). Lodging a complaint directly with IFC does not, at any time, restrict access to CAO.

Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

Independent of IFC and MIGA management and reporting directly to the IFC and MIGA Boards of Executive Directors, CAO helps resolve issues raised about the environmental and social impacts of projects through a neutral, collaborative, problem-solving approach via its Dispute Resolution function. It also reviews IFC’s and MIGA’s compliance with environmental and social policies, assesses related harm, and recommends remedial actions through its Compliance function. Additionally, CAO provides advice to IFC, MIGA, and their Boards to enhance environmental and social sustainability performance and minimize the risk of harm.

Complaints may relate to environmental and social harm regarding any aspect of the planning, implementation, or impact of a project or sub-project, and can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC- or MIGA-financed business activity.

Complaints can be submitted by any of the following methods:

Online form: available at https://www.cao-ombudsman.org/
Mail/Hand Delivery to: 2121 Pennsylvania Avenue, NW, Washington, DC 20433, USA
Voice mail: +1 202 458 1973
Email: cao@worldbankgroup.org
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CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

This Environmental and Social Review Summary (ESRS) is prepared by IFC to disclose its findings and recommendations related to environmental and social considerations regarding potential investments. Its purpose is to enhance the transparency of IFC's activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this ESRS is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein.
It is distributed in advance of IFC Board of Directors' consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following ESRS is disclosed in accordance with IFC's Access to Information Policy (AIP).

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