Mountain Lodges of Perú S.A.C.

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Project Number: 
PE3951A-02
Expected Consideration Date by the Board: 
07/28/2015
Date Posted: 
06/25/2015
Company: 
Mountain Lodges of Perú S.A.C. (“MLP”)
Sponsoring Entity: 
Not applicable
Financing Requested: 
Loan of up to US$7 million and preferred equity of up to US$2 million
Sector: 
Hotels and Tourism
Location: 
Cuzco, Peru
Country: 
Scope Objective: 

MLP is a company specializing in adventure and cultural tourism. The company began offering its tourism services in 2000 with a mountain lodge in the town of Santiago de Viñak, in the highlands of the department of Lima. In 2008 it expanded its trekking services to the Salkantay Trail to Machu Picchu, in the department of Cuzco, including lodging in four mountain lodges that are property of the company.

The company also owns a travel agency (MLP Travel) that runs a four-star 32-room hotel (El Mercado Tunqui Hotel) in the city of Cuzco. In 2014 the company opened two new mountain lodges in Lamay and Huacahuasi, along the Lares Trail to Machu Picchu.

The IIC’s participation is aimed at providing financing for the expansion of the two existing lodges along the Lares Trail, as well as the construction of a third lodge along the same trail, in the rural community of Patacancha, Urubamba province, department of Cuzco. The IIC financing will also be used to make payments to suppliers and to consolidate the company’s long-term debt.

Environmental Review: 

Environmental and labor issues:

This is a category B project according to the IIC’s Environmental and Social Sustainability Policy because it could produce certain effects that may be avoided or mitigated by following generally recognized performance standards, guidelines, or design criteria. The main environmental and labor considerations related to the project are efficient resource use and pollution prevention, workplace and labor conditions, community health and safety, and protection of cultural heritage.

Under Peruvian law, an environmental impact statement (EIS) must be submitted to the Department of the Environment and Tourism Sustainability (DMAST) and the Ministry of Foreign Trade and Tourism (MINCETUR). The company is preparing the preliminary assessment (EVAP) that defines the project’s environmental aspects; this preliminary assessment together with the architecture design are the basis to obtain the EIS. Similarly, the establishment must have a certificate attesting to the absence of archeological remains (CIRA) from the Ministry of Culture.

Social and community issues: MLP is working on a socially inclusive tourism project in the department of Cuzco to develop a number of inbound tourism businesses that are viable from the sociocultural standpoint, as well as economically, financially, and environmentally, promoting sustainable rural development and cultural identity, training local residents, offering advisory services to producers, and working to promote the rational use of natural resources, with an emphasis on food security and nutrition. One of its main spheres of action is isolated rural communities with few resources, but that strive to keep up their traditions and cultural identity. Patacancha is one such community. The project developed by MLP in the rural community of Huacahuasi, financed by the IIC, seeks such integration with the local culture. The project is at a fairly advanced stage, with some areas already in use, and the construction will be completed soon.

MLP is in the final phase of establishing a corporation with the Patacancha rural community, Patacancha Siglo XXI S.A.C. On March 14, 2015, a meeting was held with 187 Patacancha active residents—more than 70 percent of the community—who voted unanimously to approve the transfer of land and the implementation of the project. The Patacancha rural community provides 4,200 m2 of land to the company that will build the Patacancha lodge and receives 20 percent of the share capital. The agreement includes, inter alia, the community’s stake in the earnings from the operation and MLP’s commitment to support the training of the members of the community in hotel and tourism-related topics so that they can be considered for employment at the lodge.

During the project evaluation phase, the project team visited the Patacancha and Huacahuasi rural communities and conducted interviews with members of the communities, who expressed their support for the project development.

Impact on local flora and fauna: The Patacancha lodge would be nestled in a rural area among small-scale grazing and agricultural operations. The lodge is slated to be built into a mountainside overlooking an area of sparse vegetation and steep slopes. The project’s construction will not significantly impact local flora and fauna. Human activity in the areas surrounding MLP’s mountain lodges is primarily geared toward conservation and environmental protection. This concept appeals to the target population, who value ecotourism and scenic beauty. As with the company’s existing network of mountain lodges, employees will receive specialized training in conservation-related topics that they in turn share with visitors, and signposts will be mounted to mark where different species nest, feed, mate, as well as the migratory routes taken by local wildlife. This approach allows people to observe animals without disturbing them. As part of its policy to promote sustainable tourism, MLP is proposing that a flora and fauna management plan be drawn up with community participation for the lodge’s area of influence. The plan would include workshops for raising awareness and training, the identification of susceptible and vulnerable areas and species, and the selection of conservation activities.

Architecture and energy conservation: The architecture of the lodges will be designed to help the facilities blend into the existing landscape, thereby reducing to a minimum their visual impact. Their architecture also incorporates local materials and media—e.g., stone, adobe, wood, and straw—as well as cultural features that mesh the lodges’ design with the region’s traditional construction. The lodges are also designed to optimize energy efficiency, utilizing sunlight and natural ventilation together with state-of-the-art insulation techniques to minimize the need for heating in a climate marked by extremes. The design of the lodges also calls for high-performance solar and space water heaters.

Liquid effluent management: Wastewater generated by the mountain lodges is treated in a multi-stage physicochemical treatment system. Wastewater is initially treated to retain solids and grease and is then channeled for primary treatment into a dual chamber septic tank to facilitate the decantation of solids. Secondary treatment consists of a slow percolation filtering process and subsequent chlorine disinfection, following which the water is moved through a series of soak pits. The sludge resulting from the process is dried by evaporation, stabilized with lime, and returned to the soil. All cleaning products used in the lodges are biodegradable.

Solid waste management: Most of the solid waste generated at the lodges is domestic waste. Organic residues suitable for composting will be composted and used in gardens and nurseries. Any waste that cannot be transformed or reused will be removed from the area and disposed of in accordance with local regulations in coordination with the pertinent authorities. MLP encourages recycling and reducing the use of plastic products, such as bags and bottles. It also promotes the use of bulk dispensers over individually packaged consumer items at its lodges.

Construction safety, fire safety, personal safety, and emergency response: The lodges will be built in accordance with local building codes governing earthquake-resistant dwellings. Signage indicating safe areas and safe and direct evacuation routes will be posted. MLP will have a contingency plan; an emergency committee responsible for coordinating efforts, resources, and communications; and a first-aid brigade trained to respond in the event of fires, earthquakes, landslides, accidents or health problems, rescues, and evacuations. The plan covers all MLP activities in the lodges and beyond, particularly outdoor activities. In the event of an emergency, the company has a network of outside agencies it can turn to for help—e.g., police, civil defense, health ministry, fire department, armed forces, and municipal authorities. MLP also requires its visitors to be covered by insurance policies that include medical evacuation coverage.

All MLP lodges will have emergency response equipment, including equipment for fire suppression, first aid, basic search and rescue, and radio communications. MLP’s emergency brigades are required to carry out regular exercises and drills.

MLP’s safety regulations also apply to its suppliers. Specifically, transport companies that carry the company’s visitors are subject to strict safety rules that apply both to their vehicles and drivers.

During the construction phase MLP will have in place an environmental management, social responsibility, and safety plan for contractors working on the lodges. It shall identify the main impacts and risks and include mitigation and preventive measures. This plan will be part of the EIS.

Impact on air quality: The main air emissions would occur during the construction phase, originating from contractors’ vehicles and machinery. In addition to gas emissions from internal combustion engines, the project would also generate fugitive dust from vehicular traffic. With a view to mitigating gas emissions, engine maintenance will be performed regularly in accordance with the manufacturer’s technical specifications. Once the lodges begin operating, air emissions will be insignificant—limited to the facilities’ gas-fired electric generators. For this purpose, MLP has opted to use generators employing state-of-the-art combustion technology. These generators are more environmentally friendly as they produce fewer emissions of nitrous oxides, carbon monoxide, and particulate matter. In addition, the generators produce very low levels of noise. In any event, electricity from the grid will be used whenever possible.

Labor practices and social issues: MLP is in compliance with domestic labor laws and International Labour Organization (ILO) standards. Company policy requires workers to be at least 18 years of age. MLP employees do not belong to a labor union. Employees and their immediate family receive medical insurance coverage through Peru’s social security system (ESSALUD). All personnel providing services to the company are duly registered on its payroll and comply with the applicable Peruvian legislation.

The company’s training plan not only provides employees with opportunities to acquire job-specific training, but also know-how and skills not ordinarily available to them in the workplace (e.g., languages and computing), thereby enhancing employee personal development. With regard to MLP guides, in addition to receiving extensive vocational training on cultural issues and the natural environment, their training emphasizes aspects of safety, rescue, and first aid.

The company has an employee handbook. All employees are provided with a copy of the handbook and undertake to comply with its provisions in the performance of their duties. New employees are required to undergo orientation exercises and specific training for the job they are to perform. In addition, a series of individual manuals have been developed detailing the duties and responsibilities of each job within the organization. Employees are required to comply with the content of these manuals.

Monitoring and compliance: MLP shall prepare an environmental and social action plan (ESAP) satisfactory to the IIC to ensure compliance with domestic regulations and the IIC’s environmental and workplace safety and health guidelines. The ESAP will include the requirement to comply with the environmental, social responsibility, and safety plan included in the EIS, as well as an annual report to monitor changes in environmental, health, and safety guidelines.