Mexico - Second Highway Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3805-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US$200 MILLION TO BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS, S. A. WITH THE GUARANrEE OF UNITED MEXICAN STATES FOR A SECOND HIGHWAY SECTOR PROJECT May 3, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authiorization.  Currency Unit - Peso (Mex $) On April 30, 1984, the exchange rate in the controlled market was ' US$1 = Mex$159.58; the free market exchange rate stood at US$=Mex$177.70. Both exchange rates are currently sliding at a rate of Mex$0.13 per day against the US dollar. Fiscal Year January 1 to December 31 Acronyms BANOBRAS Banco Nacional de Obras y Servicios Publicos, S.A. National Bank for Public Works and Services CyPF Caminos y Puentes Federales Toll Road and Bridge Authority EFF Extended Fund Facility FOGAIN Fondo de Garantia y Fomento a la Industria Mediana y Pequena Trust Fund for Guarantees and Development of Medium and Small Industry IDB Banco Interamericano de Desarrollo Inter-American Development Bank IMF Fondo Monetario Internacional International Monetary Fund NDP Plan Nacional de Desarrollo National Development Plan N de M Ferrocarriles Nacionales de Mexico National Railways of Mexico PEMEX Petroleos Mexicanos Mexican Petroleum Monopoly SAHOP Secretaria de Asentamientos Humanos y Obras Publicas Secretariat of Human Settlements and Public Works SCT Secretaria de Communicaciones y Transportes Secretariat of Communications and Transport SHCP Secretaria de Hacienda y Credito Publico Secretariat of Finance and Public Credit SPP Secretaria de Programacion y Presupuesto Secretariat of Programming and Budgeting  FOR OFFICIAL USE ONLY MEXICO SECOND HIGHWAY SECTOR PROJECT LOAN AND PROJECT SUMMARY Borrower: Banco Nacional de Obras y Servicios Publicos, S.A., (BANOBRAS) Guarantor: United Mexican States Project Executing Agency: Secretaria de Comunicaciones y Transportes (SCT) Amount: US$200 million, including capitalized front-end fee. TermF Fifteen years, including three years of grace at the stand- ard variable interest rate. Prod Descr ton: The proposed project is a part of SCT's 1984-1986 highway program, including: (i) construction, reconstruction and expansion of national and toll roads and bridges and urban bypasses; (ii) rehabilitation and periodic maintenance of rural roads; and (iii) a technical cooperation component providing consultants' services. The project would help (i) improve congested sections, upgrade substandard pavements and extend the road network to developing areas; (ii) strengthen the planning and execution of periodic mainten- ance for rural roads and determine appropriate budgetary allocations; (iii) strengthen sectoral planning in SCT; and (iv) maintain a dialogue on land transport pricing and road freight regulatory policies. Beneficiaries: Because of the geographic dispersion of the investment pro- gram, project benefits would accrue to the economy at large in the form of vehicle operating cost and time savings. While the benefits initially would accrue to road users, it is expected that in the long run they would be passed on to consumers through lower transport costs and improved service levels. The technical cooperation component would provide significant support to improving the general planning capa- bilities of SCT, assessing major sector policy problems and articulating the required action programs. Risks: The proposed project faces three risks. First, a prolonga- tion of the economic recession could reduce sectoral invest- ment levels below those assumed for the proposed project, but the flexible format of the sector loan and the setting of the loan amount at a relatively small percentage of the Government's highway investment program should minimize the risk of delay in project execution. This document has a restricted distribution and may be used by recipients only in the performance of their off-icial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Second, potential monitoring and technical difficulties of the rural road maintenance component would be minimized by concentrating on a limited number of states and adopting detailed road inventory and maintenance programming procedures. Finally, progress in areas such as fuel price subsidies and rationalizing user charges will hinge on the degree of success achieved in overall economic management. Estimated Cost: The cost of the 1984-1986 time slice of SCT's highway in- vestment program is estimated at US$1.6 billion, with a for- eign exchange component of US$541 million. The Bank loan represents 12 percent of the total program and 37 percent of the foreign exchange requirements. Cost of Project: Local Foreign Total