Mexico - Municipal Strengthening Project

Document Of The World Bank FOR OFFICL USE ONLY Rlet No. P-4246-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$40 MILLION TO BANCO NACIONALDE OBRAS Y SERVICIOS PUBLICOS, S.N.C., I.B.D. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A MUNICIPAL STRENGTHENING PROJECT March 5, 1986 This document has a restrcted 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 authorization.  Currency Unit - Peso (MexS) On February 24, 1986, the exchange rate in the controlled market was USSI = Mex$431.80; the freemarket exchange rate stood at USS1 = Mex$470.00. Fiscal Year January 1 - December 31 ABBREVIATIONS BANOBRAS - Banco Nacional de Obras y Servicios Publicos (National Bank of Public Works and Services) CECADE - Centro de Capacitacion para el Desarrollo (Center for Development Training) CEDADEM - Centro de Estudios, Documentacion y Asistencia para el Desarrollo Mun$cipal (Center for Studies, Documentation and Assistance for Municipal Development) CNEM - Centro Nacional de Estudios Municipales (National Center for Municipal Studies) EFF - Extended Fund Facility FORTAMUN - Programa de Fortalecimiento Municipal (Program for the Strengthening of Municipalities) FRR - Financial Rate of Return GIRA - General Interest Rate Agreement INCAFI - Instituto Nacional de Capacitacion Fiscal (de la Secretaria de Hacienda y Credito Publico) (National Institute for Fiscal Training - belongs to the Secretariat of the Treasury and Public Credit) INDETEC - Instituto para el Desarrollo Tecnico de las Haciendas (Institute for Technical Development of Public Assets) MDF - Municipal Development 'Fund ORs - Ouantitative Restrictions SEDUE - Secretaria de Desarrollo Urbano y Ecologia (Secretariat for TTrban Development and Ecology) SG - Secretaria de Gobernacion (Secretariat of the Interior) SHCP - Secretaria de Hacienda y Credito Publico (Secretariat of the Treasury and Public Credit) SPP - Secretaria de Programacion y Presupuesto (Secretariat of Programming and Budget) TS - Technical Secretariat TSU - Training Support Unit  - i - FOR OFFICIL US ONLY MEXICO MUNICIPAL STRENGTHENING PROJECT .Loan and Project Summary Borrower : Banco Nacional de Obras y Servicios Publicos, S.N.C.,I.B.D. TBANOBRAS) Guarantor United Mexican States Beneficiaries : Municipalities, and various federal and state agencies (Staff Development and Organizational Strengthening components) Amount : US$40.0 million equivalent Terms : Fifteen years, including three years of grace at the standard variable interest rste. Relending Terms: The Peso equivalent of about US$30.5 million would be made available to municipalities under subloans and grants which would cover at most 80X of subproject costs. Subloans would be made at interest rates specified in the General Interest Rate Agreement (GIRA), and according to the following terms: (a) roads, sidewalks, drainage, parks and recreation areas - 5 years, including a grace period equal to the shorter of the construction period or one year; (b) water supply, solid waste infrastructure, municipal vehicle and equipment maintenance workshops - 15 years, including a grace period equal to the shorter of the construction period or four years; (c) municipal markets, slaughterhouses, public trans- port terminals and equipment - 10 years, including a grace period equal to the shorter of the construction period or three years; and (d) solid waste equipment and vehicles and micro-computers and equipment - 5 years without a grace period. For the Staff Development and Organizational Strengthening components, and for Project Administration, proceeds of the loan would be made available to the relevant implementing agencies on a grant basis. Project The Government's program objectives are to improve the Objectives and utilization of human and financial resources and strengthen Description: institutions, particularly at the municipal level, to increase the delivery of affordable and efficient urban services. Within these overall program objectives, the proposed project would: (a) strengthen federal and state agencies in the area of municipal development through provision of financial resources and effective training programs; (b) strengthen the mui.icipalities' organizational, Th dce hw a tnoite tdbtnutdamnd may be ued by nrdbats only in the prformae of their emd dudk. Is cute may not othwie be disoed witout Wo*d B a I  - ii - adMinistrative and financial management systems and performance; and (c) assist municipalities in expanding and upgrading urban infrastructure. The project objectives would be achieved through the implementation of the following components: (i) Municipal Staff Development and Organizational Strengthening; (ii) Federal and State Staff Development and Organizational Strengthening; (iii) Infrastructure and Related Investment Fund for Municipal Development; and (iv) Project Administration. Project Risks: The major project risks are: (a) the inherent difficulties in coordination; (b) the capacity and willingness of BANOBRAS to make appropriate changes; and (c) the possible loss of political momentum. The establishment of an independent Technical Secretariat and Training Support Unit, and the definition of clear roles, responsibilities and procedures in the Operating Guidelines, are expected to reduce difficulties in coordination. Previous urban and water supply lending operations have been partially constrained by problems within BANOBRAS. However, the project addresses these issues. BANOBRAS' coordination of the project preparation effort and the degree and rapidity with which changes in policy have been processed have been exemplary and indicate the management's and SHCP's commitment to change. Finally, the Government will be encouraged to accelerate implementation within the first five years to obtain a quick feedback, and also benefit from the momentum set in place by the present Administration. Project Costs: Local Foreign Total {(US$'00