Mexico - Mining Sector Restructuring Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No: 18856 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (LOAN 3359-ME) December 28, 1998 Finance, Private Sector and Infrastructure Sector Mexico Regional Department Latin America and The Caribbean Region 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 authorization.  CURRENCY EQUIVALENTS: US$ 1.00 = Mex$3.0940 average of 1992 (Peso) = Mex$3.1152 average of 1993 (Peso) = Mex$3.3751 average of 1994 (Peso) = Mex$6.4190 average of 1995 (Peso) = Mex$7.5994 average of 1996 (Peso) = Mex$7.9183 average of 1997 (Peso) = Mex$9.0652 average of 1998 (Peso) FISCAL YEAR January 1 to December 31 ABREVIATIONS AND ACRONYMS SHCP = Secretaria de Hacienda y Credito Publico Ministry of Finance and Public Credit SECOFI Secretaria de Comercio y Fomento Industrial Ministry of Commerce and Industrial Development SEMIP Secretaria de Energia, Minas e Industria Paraestatal Ministry of Energy, Mines and Parastatal Industry SEMARNAP= Secretaria de medio Ambiente, Recursos Naturales y Pesca Ministry or Enviroment, Natural Resources and Fishing NAFIN Nacional Financiera, S.N.C. National Financing Agency FM Fideicomiso de Fomento Minero Trust Fund for Mining Develoment CRM = Consejo de Recursos Minerales Mineral Resources Council DGM = Direccion General de Minas General Directorate of Mines SMM Small- and Medium-size MIning Enterprises Pequeiias y Medianas Compafiias Mineras PMI Public Mining Institutions Agencias Mineras Publicas PFI = Private Financial Intermediaries Intermediarios Financieros Privados Vice President: Shahid Javed Burki Country Management Director Olivier Lafourcade Team Manager Richard Clifford  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) TABLE OF CONTENTS PREFACE .............................................................. 1 EVALUATION SUMMARY .............................................................. 2 PART I: IMPLEMENTATION ASSESSMENT ...........................................5 A. Project Objectives ............................................................ 5 B. Achievement of Objectives .................................................. 6 C. Financial Performance ....................................................... 7 D. Major Factors Affecting the Project ........................................ 8 D. Project Sustainability ......................................................... 8 E. Bank Performance ............................................................. 8 F. Borrower's Performance ..................................................... 9 G. Assessment of Outcome ...................................................... 9 H. Future Operation .............................................................. 10 I. Key Lessons Learned ......................................................... 10 PART II: STATISTICAL ANNEXES ......................................................... 12 Table 1: Summary of Assessments ............................................. 13 Table 2: Related Bank Loans/Credits .......................................... 14 Table 3: Project Timetable .................................................. 15 Table 4: Loan/Credit Disbursements ........................................... 16 Table 5: Key Indicators for Project Implementation .......................... 17 Table 6: Key Indicators for Project Operation ................................. 18 Table 7: Studies Included in the Project ....................................... 19 Table 8A: Project Cost .................................................. 20 Table 8B: Project Financing .................................................. 21 Table 9 : Economic Costs and Benefits ........................................ 22 Table 10: Status of Legal Covenants ........................................... 23 Table 11: Bank Resources .................................................. 24 Table 12: Bank Resources-Missions ............................... ............ 25 APPENDIX A: Project Completion Mission Aide Memoir .................................. 26 APPENDIX B: Borrower's Contribution to the Report ........................................ 30 This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  1 IMPLEMENTATION COMPLETION REPORT MEXICO MENING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) PREFACE This is the Implementation Completion Report (ICR) for the Mining Sector Restructuring Project in Mexico, for which Loan 3359-ME in the amount of US$ 200 million equivalent was approved on June 25, 1991 and made effective on June 26, 1991. The loan was closed on June 30, 1998, compared with the original closing date of June 30, 1996. The final disbursement took place on October 31, 1998; at that date a balance of US$ 28.3 million was cancelled. The ICR was prepared by Gustavo Unda, LCSFP (Consultant), and reviewed by Richard Clifford (Country Sector Leader of the Mexico Department), Maria Victoria Lister, Quality Assurance Officer (LCSFP) of the Latin America and the Caribbean Region, and Felix Remy, Project Adviser (ENTIM). The preparation of this ICR began during the final supervision/completion mission, from May 18 to 25, 1998. It is based on material in the project files. The Borrower contributed to the preparation of the ICR by providing facts, figures and views reflected in the report and by commenting on the draft of ICR. The Borrower provided comments that are included as Appendix B to the ICR.  2 IMPLEMENTATION COMPLETION REPORT MEXICO MEING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) EVALUATION SUMMARY INTRODUCTION. 1. Past lending of the Bank for mining in Mexico was oriented towards specific investment projects, with direct lines of credit to the sector. e.g. for the First and Second Small and Medium Scale Mining Projects (Loans 1 820-ME and 2546-ME). The lessons learned from those operations were that the continued development of the mining sector required increased access to land rights, reduced ownership limitations, revision of the tax legislation, a restructuring of existing institutional setups, as well as policies that stimulate private investment in mining by both domestic and foreign firms. 2. The Bank Mining Sector Review (Report No. 7379-ME) identified an inadequate regulatory and institutional framework as the major constraint to increase private investment and further growth of the sector. Based on this report, the Govemment undertook a full transformation of the mining sector, and requested support from the Bank. The Mining Sector Restructuring Project was identified during discussions with the Government in 1989 during discussion of the above sector report. PROJECT OBJETIVES. 3. The project aimed at contributing to further development of the mining sector and the mining industry, facilitating local and foreign investments and increasing exports of minerals and commercial mineral products. The specific project objectives were to: (i) support the Government of Mexico (GoM) program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework; (ii) build broader financial market support to the mining industry; and (iii) help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations. The project was divided in two components: Part A - Investment Component, and Part B - Institutional Component. 4. The project objectives were based on the Bank's Mining Sector Report, that were adopted by the Government as part of the National Mining Modemization Program 1990-1994 (NMMP). 5. To support the project's objectives, loan proceeds were allocated to finance: (i) an institutional development component, addressed to the modernization of the agencies responsible for the mining registers and mining concessions; and (ii) an investment component to support the Small and Medium-Size Mining companies (SMMs). The project included environmental objectives addressed to prepare, issue and enforce mining industry's regulations.  3 IMPLEMENTATION EXPERIENCE AND RESULTS. 6. The project had a wide coverage, reaching through its institutional component the entire public mining sector, and through the investment component the small and medium size private mining companies. The internal rate of return on the investments (IEER) was always above of the minimum established during appraisal. 7. Achievement of the Objectives: The project achieved most of its deregulation objectives. Deregulation of the mining sector has resulted in more than 8.7 million hectares of the national mining reserves were released and about 17,000 new mining concessions granted, and has attracted important foreign investments. Consequently, this objective was successfully achieved. The investment component of the project, successfully contributed to build a broader financial support to the mining industry, resulted in sublending operations to finance 171 subprojects. The technical assistance objectives addressed to the modernization of the Public Mining Institutions (PMI) was highly effective, and successfully implemented. The environmental objectives were only partially achieved. 8. Sustainability: The implementation of an appropriate policy and institutional framework, which has resulted in the important private domestic and foreign investments, the release of more than 8.7 million hectares, and the approval of about 17,000 new mining concessions, ensure the sustainability of the project. 9. Project Cost and Financing: Project costs amounted to US$ 382.4 million , to finance 171 credits for SMMs, including Bank's, Government, PFIs and SMMs participation. Technical assistance and equipment for the modernization of the PMIs, amounted to US$ 7.5 million. 10. Implementation Timetable: The project was originally designed to be completed in five years, but was extended twice for one year each time, due to a severe deterioration of the macro- economic situation, generated by the economic crisis that affected the country at the end of 1994. 11. Factors affecting achievement of objectives: Investment objectives were affected by the economic crisis suffered by the country, that limited the participation of the intermediary banks. The preparation of the environmental objectives was affected by: (i) the complicated process for their preparation; (ii) the low priority given by the ministry responsible for approving their scope and contents, and the cumbersome procedures for their official approval and enforcement; (iii) institutional changes that delayed the operative functions of the agencies responsible of the mining sector and environmental matters; (iv) the shortage of funds required; and (v) changes of the environmental policies. 12. Bank and Borrower Performance: Bank performance on the whole was satisfactory, from project preparation to completion, despite the many staff changes during project implementation. Borrower performance started well with good project preparation in close collaboration with the Bank, and continued during project implementation, particularly in regard to enforcement of the "Reglamento". However, there were some problems of intra-Governmental budget coordination that impeded the application of Bank funds. Borrower performance was also affected by the institutional changes creating new Ministries and eliminating others, that contributed to delays in the preparation of environmental regulations by DGM, and delayed acquisition of a highly-specialized equipment to accelerate the execution of CRM's mining- geological information program.  4 13. Project Outcome: Satisfactory. Notwithstanding the successful achievement of the project objectives, which could justify a highly satisfactory rating of the project, other factors influenced the project's outcome. These included result the negative effect of the economic crisis that caused implementation delays, and the factors that negatively affected the timely enforcement of the environmental standards for the mining industry. The impact of the deregulation of the sector and its agencies' modernization has been outstanding: foreign investment has grown dramatically during the last five years, the sector agencies have modern Mining Register and Mining Concession systems , and have made impressive progress in the development of the Mining-Geological Information Program. SUMMARY OF FINDINGS, FUTURE OPERATIONS AND KEY LESSONS LEARNED 14. Future Operations: Now that the institutional objectives have been achieved, the agencies have been modernized and the incentives for foreign and domestic investment in the mining sector have been established, no additional Bank support will be required. 15. Lessons Learned: The importance of project ownership by the implementing agencies and the Government cannot be over-emphasized. The recommendations contained in the Mexican Mining Sector Review report, prepared by the Bank, were adopted by the Government, and were the basis for the reform of the mining sector. Many of the reforms were implemented before appraisal. Restructuring the mining sector involved implementation of important policies such as divesting from parastatal companies, and opening the exploration and exploitation of the country's mineral resources to domestic and foreign investors. The success of the project was highly dependent upon the presence and support of high government levels, and the direct commitment of the mining agencies and the respective managers. During project preparation, ownership was clearly demonstrated by the fact that, even before the Bank loan became effective, the Government had already started the implementation of the National Mining Development Plan.  5 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (LOAN 3359-ME) PART I: PROJECT IMPLEMENTATION ASSESSMENT A. BACKGROUND AND PROJECT OBJECTIVES Introduction 1. The participation of the Bank in this sector goes back to 1980, when the first loan was granted. The preparation of this project benefited from this previous experience and was further facilitated by a long standing dialogue with the Government. Based on this, in 1988, the Bank promptly reacted to the Government policy to open the economy of the country, and initiated the preparation of the Mining Sector Review that included an in-depth identification and analysis of the problems preventing an efficient exploitation of the mineral resources of the country. The review was intensely discussed and reviewed with the Government, and whose conclusions and recommendations were promptly adopted by the latter. Project Objectives 2. The objectives of the project were: * to support the Government's program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework; * to build broader financial market support to the mining industry; and * to help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations. 3. The SAR reflected an expectation that by achieving these objectives, the project would contribute to increased exploration and exploitation of the vast mining potential of the country, to take advantage of Mexico's strategic location near the United States of America and Canada. The Mining Law, approved shortly before loan effectiveness, was decisive in eliminating stringent restrictions to entry to domestic and foreign investors, that had impeded the realization of the sector's full potential by restricting private participation.  6 4. The Mining Law issued by the Government improved access to land and mineral rights to private investors, that coupled with a revised tax legislation, and the restructuring of the institutional setup of the sector, supported by the project, have been basic elements in establishing an environment which helped to realize the country's comparative advantage in the mining sector, and to stimulate private investment in mining by both domestic and foreign firms. 5. The strategies to restructure the mining sector were: (i) open the sector to foreigners; (ii) release about 6 million hectares held by CRM; and (iii) establish concession fees; (iv) reduce royalties and establish result-based taxation; (v) establish an institutional setup focussed on the role of the state as a regulator/administrator in a private-sector-led industry; (vi) support the development of the SMMS building a broader financial market support to the mining industry. 6. The project supported by the Bank included two major components: (a) an institutional component addressed to the deregulation of the sector, through: (i) the modernization of DGM's system of mining administration and control; (ii) studies to evaluate the results from the changes to the mining regulations and explore the possibility of any further policy adjustments in the future; (iii) the establishment of industry-specific environmental standards for the mining sector; (iv) training of CFM personnel to improve their project evaluation and supervision skills, as well as their capability to provide advice on the potential environmental impact of mining projects; and (v) upgrading of CRM's capability to generate, process and divulge geological information; and (b) an investment component addressed; (i) to build a broader financial support to the mining industry, and (ii) provide financial support to the SMM's. B. Achievement of objectives 7. Based on the ample and long experience with Bank-financed projects, and the training program undertaken by FFM to evaluate and supervise mining subprojects, investments of about US$ 164.2 million were financed by the Bank, contributing to (i) the achievement of the objective to broaden the financial market support to the mining industry, and (ii) increase the beneficiaries' product quality and production, create jobs, and in some cases, foreign exports. The institutional changes supported by the project, have also contributed to the expected foreign and domestic investments in mining exploration and exploitation. 8. Physical components. The investment component of US$ 191.5 million under Category 1 was reduced from US$ 191.5 million to US$ 177.0 million, transferring US$ 4.5 million to Category 2 to assist DGM in the preparation of the environmental regulations, and US$ 10.0 million to Category 4 to enable CRM to acquire additional geological and mining survey equipment, including a highly specialized airplane. Total credits financed by the project amounted to US$ 367.9 million, of which US$ 164.2 million equivalent were financed by the loan, US$ 127.7 million by the SMMs' own resources, US$ 21.3 million by the intermediary banks and US$ 54.7 million by FFM. The undisbursed balance of the loan of US$ 28 3 million, was cancelled. There were 171 subprojects financed. 9. During the implementation of the project, the following amendments were made: - on November 10. 1995: (a) to the Loan, CFM Project and Guarantee Agreements, to reflect the dissolution of CFM and the assumption of its functions, assets, rights, obligations and liabilities by FFM and CRM, all pursuant to the Guarantor's Mining Law published in the Official Gazette on June 26, 1992; (b) to the Loan Agreement: (i) extend the Closing Date from June 30, 1996 to June 30, 1997; (ii) establish thresholds for prior review and/or approval of budgets, short lists, selection procedures, letters of invitation, proposals, evaluation reports and contracts, and procedures; (iii) establish procedures to employ consultants for complex, time-based assignments;  7 (iv) transfer funds (US$ 14.5 million) from Categories 1 and 4, to Category 2, US$ 10 and US$ 4.5 million, for additional funding for CRM, and DGM, respectively; (v) increase the size limit for subloans, from US$ 5 million to US$ 10 million; (vi) amend the percentage of funds to be supplied by the financial intermediary to 10% until December 31, 1995 and 15% thereafter; - on June 18. 1997: the Guarantee Agreement was amended to: (i) allow FFM to increase its direct financing of operations; (ii) increase the percentage of total FFM direct lending from its own resources; and (iii) reduce the participation of the intermediary banks to 5%; and - on January 3, 1998, the loan was converted to SCL Terms. 10. Institutional Component. The project was designed to support the Government program to deregulate the mining sector and stimulate private domestic and foreign investment, through the establishment of an appropriate policy and institutional framework. This was to be done by means of technical assistance and training, to modernize the mining sector agencies. 11. The implementation of the project covering the institutional development and the investment components, brought about the following improvements: (a) stronger Govermnent agencies responsible for the sector, and establishment of CRM as a geological research institute with capabilities to generate, process and divulge geological information. (b) a broader financial market support to the mining industry, through the implementation of the Mining Law and the "Reglamento", that facilitates foreign and domestic investment in exploration and exploitation of mining resources. (c) a new institutional setup of the mining sector. (d) support to the National Mining Development Program. (e) stronger capabilities to evaluate and supervise SSMs subprojects, and broader financial support for their modernization/expansion. 12. As a result, geological information on the mineral resources of the country are available to the international and domestic mining community to facilitate and promote their participation in the exploration and exploitation of those resources Additionally the SMMs benefited from credits for their modernization and/or expansion, to be more competitive in the domestic and international markets. The total cost of the technical assistance and equipment for the modernization of the mining agencies, amounted to about US$ 7.2 million equivalent, and the amount invested in related operating costs was about $ 0.30 million equivalent. 13. The project was to be implemented from 1992 to 1996. The Closing Date was postponed two times, for completion in 1997 and 1998, almost entirely due to delays caused by the 1994 economic crisis that affected the country. When the project was finally closed in June 1998, disbursements amounted to US$ 171.7 million, leaving an undisbursed amount of US$ 28.3 million, that was cancelled. Notwithstanding the delays, the investments were efficiently supervised and effectively implemented. C. Financial Performance. 14. A condition for subprojects to be financed under the loan, was that they had to have a financial rate of return (FRR) of no less than 12%, and for most of them it was considerably higher.  8 D. Major Factors Affecting the Project. 15. The major factors that affected the execution of the project were: (i) the December 1994 economic crisis that generated large arrears on payments of mortgages and all types of loans to the private sector, that resulted in slowing down credits to the SMMs from 1996 onwards; (ii) the 1995 ministerial restructuring that slowed preparation of environmental regulations, as the mining sector and the environmental agencies that were transferred to different ministries,, remained non operational for nearly one year, while their internal regulations were being defined, coupled with the low priority given to this task by the responsible ministries; and (iii) since 1996, no funds were assigned to DGM to complete the environmental regulations. E. Project Sustainability 16. Project sustainability is likely. The mining sector supported by the project, has introduced important changes, among which the most important ones are: (i) cancellation of mining concessions to parastatal enterprises, followed by the Mining Law's provisions to grant access to them and, in general to all mining resources, to domestic and foreign investors; (ii) introduction of a modified taxation system addressed to promote investments and cancel non-exploited mining concessions; (iii) implementation of an institutional setup that provides immediate access to the Mining Register and Mining Concessions, together with simplified procedures to award concessions; and (iv) creation of geologic-mining information of the whole country, and making it available to the domestic and foreign mining community. The strengthened and restructured PMLs now rely on trained personnel and the state-of-the-art technology for the acquisition and dissemination of basic information. The PMIs' challenge will be to retain trained personnel and the motivation to fully implement their mandate. F. Bank Performance 17. Project Identification and Preparation. Highly Satisfactory. The reforms undertaken by the Govemment that transformed Mexico into one of the most open economies in the world, and the comprehensive study Mining Sector Review carried out by the Bank in 1989, provided a solid ground for outlining the scope of the project, particularly in all matters concerning the sector's institutional aspects. Fruitful dialogue with the Government led to a clear understanding of the actions needed and the support required to implement them. The complex issues involved in the implementation of the restructure of the sector were incorporated as part of the preparation of the project. 18. Project Appraisal. Highly Satisfactory. The appraisal mission consisted of six staff members and four consultants that reviewed and analyzed the Government's National Mining Modernization Program, to define the ways and means required to implement: (i) a deep reform and restructuring of the mining sector, including mineral rights policies, allocation rights and the taxation mechanisms system; (ii) the modernization of all agencies concerned; (iii) the support to the SMMs; and (iv) the regulatory aspects of the sector. All the above is clearly reflected in the SAR and in the legal documents. The deadline for the preparation of environmental regulations for the mining sector, however, was underestimated, because the mission did not know the complexity of the task. 19. Supervision. Satisfactory. The staff and consultants that prepared the appraisal of the project, had a limited participation during its implementation. There were also many Task Manager changes, but the dialogue and support between the mining agencies and the Bank, facilitated project supervision. The attitude of the Bank was flexible, and when the need it arose  9 responded well. During the early stages of project, the Bank reacted strongly when it perceived serious delays in the preparation and issuance of environmental regulations for the mining sector, but as project implementation proceeded, the complexity of the process was appreciated (the large number of participants and cumbersome procedures, public consultations, etc.). Further delays were caused by changes of environmental policies, and aggravated by the shortage of financial resources required to carry out the task (para. 15). Based on the above, reluctantly, the Bank decided against taking punitive actions, allowing more time for the compliance of this condition. In view that the economic crisis slowed down loan disbursements, the Closing Date was extended twice, for one year each time, and the loan was finally closed leaving an undisbursed balance of US $ 28.3 million. G. Borrower Performance 20. Preparation and Appraisal. Highly Satisfactory. Prior to appraisal the Government had already agreed with the findings and recommendation of the Bank's Sector Review Report, and furthermore, had already issued the new "Reglamento" of the old Mining Law that initiated the regulatory reform work. The new Mining Law, which firmly established the legal basis for the sector reform, was enacted shortly after. Consequently, all the concerned agencies had an active participation in preparing information and data required by the Bank to appraise the project, and later, provided full support and additional information needed to the appraisal mission. 21. Implementation. Satisfactory. The 1994 economic downturn in the country inflicted serious problems on the private banks. As a result, implementation of the investment component of the project was slowed, as the banks were forced to limit their lending operations. In an attempt to alleviate such situation, the Bank agreed to reduce the banks' financial participation to 5%, but the impact of this measure was negligible. For reasons previously explained (para. 15), environmental regulations are still to be completed. At the time of the preparation of this report, the status of the environmental regulations was as follows: two regulations have been issued, five more are in the final review phase by the National Institute of Ecology (INE); an environmental regulatory plan for an important mining region has been completed, but its approval by INE is pending; manuals for preventive environmental measures for underground an open-pit mining, are under preparation; however, once the review and revision of the Environmental Impact Regulation, is completed, DGM and INE will determine if the above manuals are issued. During the early stages of project implementation, the progress in the transformation of CRM into a geological research institute was slow, but by the time the project was completed, the agency had achieved full conversion that has received national and international recognition. DGM's modernization has been completed, although since 1996, with funds, other than the Bank's, because the latter were not included in its annual budgets. 22. Compliance with Loan Covenants. Satisfactory The status of implementation of the major legal covenants is given in Table 10. The Government commitment to complete and issue the environmental regulations for the mining industry, is the only loan condition that could not be complied with. H. Assessment of Outcome 23. Overall rating: Satisfactory. Despite that the closing date had to be extended twice for one year each time leaving an undisbursed amount of the loan of US$ 28.3 million, and environmental regulations have not yet been completed, the overall outcome was satisfactory. The satisfactory rating is based on the successful achievement of the following three major activities of the project: (i) the deregulation of the mining sector to stimulate private domestic  10 and foreign investment, through supported by the institutional component of the Bank, that resulted in and increase of the mining-metallurgic production, of more than 10%, from 1990 to 1997; (ii) broaden the financial support to the mining industry, supported by the investment component of the project, that attracted commercial banks participation of about US$ 21.3 million equivalent, despite the problems generated by the economic crisis; and (iii) help finance the surge in demand for investment funding that was expected to result from the improved policy and institutional setting for mining operations, reflected by the US$ 164.2 million, financed through the investment component of the Bank loan. Although there were problems for the completion of the environmental regulations for the mining sector (para.15), progress has been made, and the decision to complete this task is based on the fact that the DGM's unit in charge of it continues to working on it. The above justifies the decision to classify the project outcome as satisfactory. L. Future Operation 24. Now that the institutional objectives have been achieved, future operations of this kind are not contemplated and, therefore, no additional Bank support is required. J. Key Lessons Learned. 25. The lessons learned, discussed below, underscore the linkage between project success and project design, and project ownership. In this particular case, design was preceded by an important and comprehensive Sector Review, whose findings and recommendations were fully agreed and adopted by the Government. 26. Project Ownership. The importance of project ownership by the implementing agencies and the Government cannot be over-emphasized. The recommendations contained in the Mexican Mining Sector Review report, prepared by the Bank, were adopted by the Government , and were the basis for the reform of the mining sector . Many of the reforms were implemented before appraisal. Restructuring the mining sector involved implementation of important policies such as, divesting from parastatal companies, and opening the exploration and exploitation of the country's mineral resources to domestic and foreign investors. The success of the project is highly dependent upon the presence and support of high government levels, and the direct commitment of the mining agencies and the respective managers. During project preparation, ownership was clearly demonstrated by the fact that, even before the Bank loan became effective, the Government had already started the implementation of the National Mining Development Plan. The investment component, on the other hand, suffered delays that at the end prevented the full disbursement of the loan, resulted in the modernization/expansion of a large number of SMMs. 27. The main lessons to be learned from this project are that: (i) the Bank's prompt reaction to the policies adopted by the Government to open the economy of the country led to the preparation of the Bank's Mining Sector Review, whose findings and recommendations were widely accepted by the latter, and resulted in the issuance of a new Mining Law;  11 (ii) although there were shortfalls in some aspects of the implementation of the project, the efficiency gains from the modernization of the mining agencies, has already stimulated private domestic and foreign investments; (iii) despite the problems that delayed the preparation and enforcement of the environmental regulations applied to the mining sector, the progress made has paved the way to continue the work started under the project, not only because the government agencies are fully conscious of the benefits, but also because private investors are now aware of their need as well.  12 IMPLEMENTATION COMPLETION REPORT MEXICO MINING SECTOR RESTRUCTURING PROJECT (Loan 3359-ME) PART II: STATISTICAL TABLES  13 Table 1: Summary of Assessments Macro policies X Sector policies X Financial objectives X Institutional development X Physical objectives X Poverty reduction X Gender issues X Other social objectives X Environmental objectives X Public sector management X Private sector development X x Identification X Preparation assistance X Appraisal X Supervision X Preparation X Implementation X Covenant compliance X Operation (if applicable) NA NA NA Overall X  14 Table 2: Related Bank Loans Loat/Credttite Purpose Year of approval Status Preceding operations 1. Loan 1820-ME Exploiting the market 1980 Successful in channeling US$40 million potential of the mining most of the loan to sector; private sector SMM Small and Medium-Scale Generating employment development. Objectives Mining Development Project among low income were too broad to be groups. achievable under the proiect design adopted. 2. Loan 2546-ME Support Government's 1985 Almost 500 SMMs US$ 105 million sector development subprojects financed by Second Small and Medium-Scale strategy; the loan, generated Mining Development Project Strengthen capabilities about 4,900 new jobs, of major institutions and incremented supporting SMMs; production by about 5% Improve coordination per year. Credits for within the sector. metallic mining development and for exploration, performned highly unsatisfactorily. Coordination and monitoring the implementing agencies never functions as planned. The overall economic imnpact of the project was positive, meeting appraisal estimates. TOTAL: US$ 145 million  15 Table 3: Project Timetable Ident station (Executive project Su06mary) /24 /89 10/24 /89 Preparation 06/05/90 06/05/90 Appraisal 09/90 & 01/91 09/90 & 01/91 Negotiations 04/--/91 04/--/91 Board presentation 06/25/91 06/25/91 Signing 06/26/91 06/26/91 Effectiveness 11/25/91 11/25/91 Project completion 06/30/98 06/30/98 Loan closing 06/30/98 06/30/98  16 Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual (US$ million) Fy FY FY FY FY FY FY FY 19 _________________________ 1992 1993 I4 19" 1996 1997 1998 Appraisal estimate 50.0 90.0 135.0 180.0 200.0 Actual 20.0 70.9 85.6 96.4 146.6 158.1 159.0 171.7 Actual as % of estimate 40 79 63 54 73 79 79.5 85.9 Date of final disbursement 10/31/98  17 Table 5: Key Indicators for Project Implementation (a) Incremental jobs (* 4068 (b) Incremental Output, on an annual basis 1.5% per year (c) Direct and indirect exports generated, from 1990 to US$ 1,800 M 1998 (**) (d) Subprojects location In all States with mineral resources (e) Type of subproject Small mining enterprises which annual production value is of no more than US$ 3 million equivalent, and medium-size ones which annual production is of no more of US$ 35 million (f) Investment in mining: US$ 26,800 M rivate domestic and foreig (a) Number of subprojects financed 171 Total investment: Financing breakdown: Beneficiaries: Intermediary banks: World bank: (b) Number of subprojects financed 171 Total investment by item: Fixed assets: US$ 260.0 M Working capital: US$ 28.0 M (*) Incremental jobs reported by FFM were 4068, but the cost for job generated can not be estimated, as the objectives of most of the subprojects financed, were addressed to increase quality and production, while reducing production costs, and sometimes the labor force; (**) Mining-Metallurgic Production  18 Table 6: Key Indicators for Project Operation Operating aspeets A!tnal (a) Implementation of FFM's, DGM's and CRM's Satisfactory completed modernization plans (b) Execution of the technical Satisfactory completed assistance program for DGM, FFM and CRM (c) Number of hectares released from National Mining 8'753,051 Reserves (d) Number of concessions granted, by type and size 17,220  19 Table 7: Studies Included in Project 2=W0Ni=9WLLL EMSa Evaluation of the impact of the "Reglamento" Cancelled On investment in mining exploration and exploitation in Mexico. Review the possibility of future changes in the Cancelled Guarantor's land management policies, in order to develop an improved policy setting for Mexico's mining sector in the medium term. Both studies were cancelled, once the impact of the new institutional setup, and the Mining Law and its new "Reglamento", showed their adequacy, as their benefits were reflected by important foreign investments in the mining sector.  20 Table 8A: Project Cost .Appraisal Estimate (U Actual (USSM) Category and Item - Local Foreign Total Local Foreign Total costs costs, -.-- Costs Costs I. Goods and Works under 76.5 115.00 191.50 65.67 98.52 164.19 Subprojects 2 (a) Consultants Services and 1.28 1.28 1.41 1.41 Equipment under Parts B1,B2 AND B3 2 (b) Consultants Services and 6.42 6.42 5.82 5.82 Equipment under Part 4 3(a) Operating Costs under 0.15 0.15 Parts B11, B2 and B3 3(b) Operating Costs under 0.40 0.40 0.28 0.28 Part B4 4 Works under Part B 4 0.13 0.12 0.25 TOTAL 76.63 123.37 200.00 65.67 106.03 171.70 Note: Appraisal Estimates of local and foreign costs under Category 1 are not available; the amounts shown were calculated applying the percentage that the cost of equipment acquired under the lines of credit represents, when compared with the total cost of subprojects financed.  21 Table 8B: Project Financing Appraisal Estimate IBRD 191.50 45.0 8.50 77.3 200.00 34.1 Beneficiaries 148.90 35.0 148.90 45.8 Government 63.80 15.0 2.50 22.7 63.80 15.2 (FFM)I PFI 21.30 5.0 21.30 4.9 TOTAL 425.50 100.0 11.0 100 436.50 100.0 Actual Cost S{{uMCg j 1tt ,% Wprti % TMaJ IBRD 164.2 45 7.2 100 0.3 100 171.7 Beneficiaries 127.7 35 127.7 Government 54.7 15 54.7 (FFM) PFI 21.3 5 21.3 TOTAL 367.9 100 7.2 100 0.3 100 375.4  22 Table 9: Economic Costs and Benefits The project's and loan characteristics do not permit to determine economic costs; however, the Government policy to open the markets, make the domestic prices comparable to the international one, and consequently the economic rate of return should be very similar to the financial return of 12% stipulated as the minimum for all subprojects financed by the loan. The benefits of the project are reflected in the number of jobs created by the subprojects, and the export market increase generated by subprojects which production is oriented to foreign markets.  23 Table 10: Status of Legal Covenants LA 3.01 Execution of the project C Transfer of loan proceeds LA 3.02 Subproject criteria and C Borrower obligations as procedures trustee of FFM LA 3.03 Procurement C Bank Guidelines LA 4.01 Accounts and Audits C Maintain separate records and accounts in accordance with sound accounting practices, and have them annual audited PA (*) 2.02 Project Implementation C Management aspects of the arrangements executing agencies PA 2.03 to 2.05 Monitoring/Reviews C Monitoring, review and reporting GA 3.01 Financial CP Assist executing agencies in carTying out their ~~~~~~~~~~~~~~~~respective obligations GA 3.04 Sector policy C Achievement of project l____l ____=__ conditionality objectives GA 3.05 Environmental CP Environmental regulations LA = Loan Agreement; PA = FFM Project Agreement; GA = Guarantee Agreement C = Complied with; CP = Partially complied with (*) Originaly named CFM Project Agreement but later changed to FFM Agreement  24 Table 11: Bank Resources: Staff Inputs -____ _ Planed Revised Actual Stage of project cycle Weeks US$ '000 Weeks US$ '000 Weeks US$ '000 Preparation 0.0 0.0 0.0 0.0 79.5 206.10 Appraisal 0.0 0.0 0.0 0.0 62.2 133.20 Negotiations 0.0 0.0 0.0 0.0 13.2 32.50 Supervision 7.0 22.2 13.0 31.4 100.5 252.70 Completion 50.0 99.8 39.0 62.8 1.0 0.00 TOTAL 57.0 122.0 52.0 112.6 256.4 624.50  25 Table 12: Bank Resources: Missions Preparation 02/89 9 7 MS, FNA, CE, 1 ME, C, EE Appraisal 04/90 4 5 MS, FNA, ME 1 09/90 4 8 MS, FNA, CE, ME, C, EE 01/91 6 8 MS, FNA, CE, ME, C, EE Supervision 03/92 1 9 E,MS,ME,EE 2 E 10/92 3 4 E 1 04/93 2 5 ME,FNA 2 M,E 01/94 2 4 E,MS 2 M,E 07/95 4 5 MS,FNA,E, S S F,E,D 10/95 2 2 EE,CE,ME S S E,D 04/96 3 2 EE,CE S S E, D 06/97 2 8 CE,FNA S S E,D 10/97 1 8 CE S S E,D 02/98 1 10 CE S S E,D 05/98 1 2 CE S S E,D ICR 08/98 1 2 CE Total Bank Resources: Staff Days Preparation 9 63 Appraisal 14 100 Supervision 22 109 Completion (pending) Total 45 272 a/ C-Consultant; e- Economist; FNA- Financial Analyst; ME-Mining Expert; EE-Environmental Expert; ME- Mining Expert; CE-Civil Engineer b/ Performance ratings between March, 1992 and April, 1993 were based on overall performance (first column) and development objectives (second column). Form 590 was revised in 1994 to reflect the implementation status and development impact. c/ F-Financial; M-Managerial; T-Technical; E- Environmental; D-Disbursement Mexico Regional Department Latin-American Region  26 MEXICO Proyecto de Reestructuracion del Sector Minero (Pristamo 3359-ME) Appendix A Misi6n de Supervisi6n (Mayo 18 a 25, 1998) Ayuda Memoria Esta Ayuda Memoria (AM), tiene por objeto resumir los resultados de la misi6n de supervisi6n del proyecto de referencia, integrada por el Ing. Gustavo Unda, Gerente del proyecto. En vista de la proximidad de la fecha de cierre del prestamo de referencia (Junio 30, 1998), y teniendo en cuenta que el saldo sin desembolsar del prestamo es de aproximadamente US$ 47.0 millones (incluyendo los fondos no comprometidos de la Cuenta Especial), los objetivos de la misi6n fueron: (a) la revisi6n del estado de avance de cada una de las componentes del proyecto y en especial de los desembolsos del prestamo; y (b) la discusi6n del alcance y contenido del Informe de Terninaci6n del Proyecto (ITP) y el envio de la informaci6n necesaria al Banco, para que el mismo inicie la preparaci6n de la parte del ITP. La lista de las personas contactadas por la misi6n aparece en el Anexo I de esta AM. I. Estado de Avance del Proyecto. 1. Normas ambientales. DGM, con el apoyo de la Camara Minera de Mexico (CAMIMEX), y con los recursos aportados por FFM para ello, continua trabajando en las tareas relacionadas con la normatividad del sector minero. El estado de avance a la fecha fue presentado a la misi6n por DGM. La culminaci6n de todas las tareas relacionadas con esta actividad, es la expedici6n y entrada en vigor de las normas, sin embargo, los resultados y tiempo transcurrido, son poco halagadores, ya que ademas ha habido demoras en las decisiones/aprobaciones del Instituto Nacional de Ecologia (INE) durante el proceso de preparaci6n que tales normas requiere, aun cuando la misi6n desconoce si tales demoras se han debido a la reestructuraci6n institucional que tuvo lugar a principio de la presente administraci6n, a la redefinici6n de politicas ambientales, a reajustes intemos del INE, o a otras causas. 2. Fortalecimiento Institucional. (a) DGM De 1994 a 1995, DGM desarroll6 y estableci6 exitosamente los sistemas de control y registro de concesiones mineras y de modernizaci6n administrativa, en una primera etapa. Sin embargo, la segunda etapa tuvo que posponerse debido a que los fondos asignados en el prestamo para dicho fin, no fueron incluidos en el presupuesto de DGM en 1996. La misi6n fue informada, sin embargo, que durante 1997 y 1998, el presupuesto de DGM, incluy6 recursos presupuestales ajenos al prestamo, que han permitido la ejecuci6n de la segunda fase de las actividades arriba mencionadas. (b) CRM De igual manera, durante 1994 y 1995, CRM con el apoyo del Banco, inici6 un ambicioso programa Minero-Geol6gico, que tambien sufrio retrasos durante 1996 al no haberse aprobado en su presupuesto los recursos asignados en el prestamo para tal fin. A partir de 1997, CRM ha recibido amplio apoyo del Gobierno, para inclusive, acelerar la ejecuci6n del citado programa. El proceso de modernizaci6n de CRM ha ido acompaffando de un amplio programa de capacitaci6n de su personal. El Banco, a traves de la supervisi6n del proyecto, ha tenido oportunidad de conocer los detalles del programa mencionado. 3. Apovo a la pequefla y mediana mineria.  27 La misi6n tuvo oportunidad de reunirse con fimcionarios de FFM, NAFIN y de la Secretaria de Hacienda y Credito Ptblico (SHCP) para revisar el apoyo financiero brindado a la pequefia y mediana mineria, de 1991 a la fecha, tanto con recursos propios de FFM como con fondos del prestamo del Banco. FFM present6 un documento resumiendo los creditos otorgados, que muestra lo siguiente: - de los US$ 192.5 millones asignados en el prestamo para el fmanciamiento de subproyectos mineros, a la fecha se han ejercido y desembolsado US$ 145.6 millones, quedando un saldo sin desembolsar de US$ 46.9 millones, incluyendo aproximadamente US$ 5.8 millones que estan en la Cuenta Especial; - se encuentran pendientes las lineas de credito de 11 subproyectos con un costo de aproxinadamente US$ 28.5 millones, ya autorizados por el Banco; - otros cuatro subproyectos con un costo estimado de US$ 3.5 millones, han sido enviados al Banco y se encuentran en proceso de revisi6n; - FFM esta preparando el resumen ejecutivo de 6 subproyectos mas, con un costo estinado de US$ 0.8 millones, que se espera que en los pr6ximos dias sean enviados al Banco, para su revisi6n; y ademas esta integrando y/o evaluando 14 nuevos subproyectos susceptibles de ser financiados a traves del prestamo, cuyo monto aun no esta defmido. La misi6n indic6 claramente que a pesar de tener una cartera tan importante de subproyectos susceptibles de ser financiados por el Banco, es evidente que hay serias dificultades para que las lineas de credito a traves de los intermediarios fmancieros, sean aprobadas. FFM a su vez, hizo notar a la misi6n que, tal como se indica en el citado documento, hay los siguientes elementos, que se considera deben ser tomados en cuenta por el Banco: - durante el periodo indicado, el organismo ha otorgado creditos por un monto de aproximadamente $ 2,250 millones de pesos, de los cuales $ 708 millones corresponden a aquellos fmanciados con fondos del prestamo (los US$ 145.6 millones desembolsados); - durante 1997, se aprobaron por FFM creditos fmanciados $327.9 millones, de los cuales dicho organismo financi6 con recursos propios la cantidad de $ 303.7 millones, mientras que solamente se aplicaron $ 24.2 millones (equivalentes a US$ 3.1 millones) de los fondos del prestamo; y - durante los cuatro primeros meses de 1998. se han aprobado creditos por $ 34.1 millones, de los cuales FFM financi6 $ 22.1 millones y el Banco solamente $ 12.0 millones (equivalentes a US$ 1.45 millones). Por otra parte, FFM expres6 que los objetivos del proyecto fmanciado por el Banco, coinciden con los objetivos de los creditos que otorga FFM utilizando sus propios recursos, ya que: - un volumen importante de los mismos, se hace de los mismos intermediarios financieros; - los plazos y las tasas son similares; - los criterios de evaluaci6n de los subproyectos y la integraci6n de la documentaci6n que es sometida a la consideraci6n de su Comite, son los mismos que se aplican para subproyectos que son sometidos a la revisi6n y aprobaci6n del Banco; - los planes fmancieros, sin embargo, difieren de los de los subproyectos fmanciados por el Banco, ya que no es requerimiento indispensable que el intermediario fmanciero participe en el  28 financiamiento de los mismos. FFM hizo notar a la misi6n que ello facilita y agiliza las negociaciones de las empresas mineras con los intermediarios fmancieros; - la participaci6n de las empresas que solicitan el financiamiento de sus proyectos, generalnente aportan recursos para capital de trabajo y de otros costos relacionados con dichos proyectos, y forman parte de la linea de credito negociada con los intermediarios financieros; y - las garantias requeridas por el intermediario fmanciero, en terminos generales. son similares a las que requieren para subproyectos financiados con fondos del prestamo del Banco. II. Informe de Terminaci6n del Proyecto (ITP). La misi6n celebr6 reuniones para explicar a cada una de las agencias ejecutoras del proyecto, el alcance y contenido del ITP; los representantes de la Secretaria de Hacienda y Cr6dito Puiblico (SHCP) y de Nacional Financiera (NAFIN) tambi6n participaron en dichas reuniones. Con el objeto de facilitar la preparaci6n de las partes del ITP con las que participaran dichas agencias, NAFIN entreg6 a las mismas, copias del informe de Evaluaci6n del Proyecto (Staff Appraisal Report (SAR)), asi como de las secciones de los documentos legales del proyecto, relevantes para la preparaci6n del ITP. Adicionalmente a lo anterior, la misi6n, tambien por conducto de NAFIN, entreg6 una lista de referencia de las tablas, todas ellas referidas al SAR, que se requiere sean preparadas y enviadas al Banco, a la brevedad posible. Se acord6 que la parte del ITP, cuya preparaci6n sera coordinada por NAFIN y ejecutada por las agencias ejecutoras del proyecto, deberA enviarse al Banco, a mas tardar, un mes despues de la fecha de cierre del prestamo. Sin embargo, la misi6n solicit6 que las tablas actualizadas del SAR, sean enviadas al Banco, de ser posible antes de dicha fecha. La ejecuci6n del proyecto se ha visto afectada por elementos ex6genos al mismo y al Fideicomiso de Fomento Minero (FFM), el Consejo de Recursos Minerales (CRM) y la Direcci6n General de Minas (DGM), agencias ejecutoras del proyecto. En consecuencia, la misi6n hizo hincapie en la necesidad de que los informes de cada una de ellas, contengan una descripci6n sucinta del impacto de dichos elementos (reestructuraci6n institucional, tal como la transferencia de los organismos responsables de la ejecuci6n del proyecto de una Secretaria a otra, restricciones presupuestales por cuestiones de indole macro-econ6mica, etc.). De igual manera, la misi6n recomend6 que los citados informes contengan una breve descripci6n del inpacto del proyecto en beneficio del sector minero. Aun cuando Nacional Financiera inform6 a la misi6n de la intenci6n del Gobierno de solicitar una tercera extensi6n de la fecha de cierre del prestamo, con el objeto de tener oportunidad de utilizar la totalidad o cuando menos una parte importante del saldo del prestamo pendiente de desembolsar, se acord6 que en vista de la incertidumbre de que dicha pr6rroga sea aprobada por el Banco, tanto el Prestatario como cada uno de los organismos responsables de la ejecuci6n del proyecto, procederan a preparar de inmediato la informaci6n necesaria para que el Banco inicie el ITP que presentara a su Directorio. Las tablas actualizadas que aparecen en el SAR, deberan ser enviadas al Banco a mas tardar el 31 del pr6ximo mes de Julio, salvo que el Banco apruebe la extensi6n de la fecha de cierre del prestamo. III. Solicitud de Extensi6n de la Fecha de Cierre del Prestamo Basandose en lo anterior, NAFIN confirm6 a la misi6n que, tal como lo habia indicado en la reuni6n al inicio de la misi6n, procedera a solicitar una nueva extensi6n a la fecha de cierre del prestamo, con el prop6sito de poder desembolsar los fondos remanentes del prestamo, que seria la tercera en caso de ser aprobada por el Banco.  29 La misi6n recomend6 que dicha solicitud este s6lidamente sustentada, aportando todos los elementos necesarios que permitan al Banco evaluar las posibilidades de alcanzar dichlo proposito, y expres6 que no se puede considerar a priori que la extensi6n sera aprobada por el Banco, ya que entre otras cosas, se tendran que tomar en cuenta los extremadamente bajos niveles de desembolso de los fondos del prestamo durante los ultimos 18 meses. Durante las reuniones celebradas, NAFIN, SHCP y FFM mencionaron que la solicitud de pr6rroga al cierre del prestamo a ser presentada al Banco, incluira la autorizaci6n para: (i) fmanciar retroactivamente, subproyectos mineros que FFM a traves de intermediarios fmancieros, ha financiado con recursos propios; y (ii) con caracter de excepci6n, de ahora en adelante, eliminar la participaci6n del 5% del monto de los creditos por parte de los intermediarios fmancieros, para los subproyectos ya aprobados por el Banco, pero que no han podido concluir satisfactoriamente las negociaciones de las lineas de credito, y para aquellos que se presenten de ahora en adelante a su aprobaci6n. Mexico D.F., Mayo 25, 1998 Por la Misi6n del Banco Mundial Ing. Gustavo Unda Gerente del Proyecto  30 Borrower's Contribution to the ICR Appendix B Evaluation Summary Mining Sector Restructuring Project Introduction The World Bank's participation in the mining sector dates back to 1981 when the first Bank loan (loan 1820-ME, for US$ 40 million) for a project addressed to provide technical assistance to the sector for production plants and mining exploration and contribute to the development of small- and medium-size mining companies; the project was completed in May, 1986. A second loan became effective in April 1986 (Loan 2546-ME, for US$ 105 million) was for another project as continuation of the first one, to provide: (i) technical assistance for institutional strengthening of the executing agencies; (ii) financial resources for exploration and exploitation and development of mineral resources; and (iii) promote the financial participation of the commercial banks. Project Objectives In 1991, the Government signed Loan 3359-ME for US$ 200 million which scope was designed to: (i) assist the Government in restructuring the mining sector in establishing an institutional framework including mineral rights policies, allocation rights and the taxation mechanisms system, to eliminate the problems that had been affecting the sector; and (ii) continue the financial support to the small- and medium-size mining companies. The main objectives of the project were: the elimination of obstacles that prevented domestic and foreign investments in the sector; the facilitation of mining concessions and the development mining geologic information, that together with a suitable institutional framework would promote needed domestic and foreign investments to explore and exploit the country's mineral resources. Among the key factors that contributed to attaining the project objectives, are the Mining Law and its new "Reglamento, and the revised mining taxation system, resulting in the following progress made: (i) more than 17,000 mining concessions have been registered, totaling about 8.7 million hectares; (ii) the time required for processing mining concessions went down from 5 years to 5 months, and as a consequence, the backlog of about 14,000 concession requests that were pending since 1989, has disappeared; (iii) concessions' cancellation and/or release the amount to about 14 million hectares. In macro-economic terms, as a result of the privatization of the public mining companies, the following has been achieved: (i) the value of the mining has grown a 1.5% per year, from US$ 3,112 million to US$ 3,453 million, during the period 1990 to 1997; and (ii) exports increased about 4.4% per year, from US$ 1,526 million in 1990, to US$ 2,066 in 1997. Implementation Experience and Results When the Loan Agreement was signed, the New Mining Law was still to be issued and its new "Reglamento" was yet being prepared.; however, taxation to mining activities had been reduced, the Mining Rights had been derogated and Superficial Rights had been updated. Prior to  31 loan negotiations the Government had undertaken the National Mining Modernization Program 1990-1994, designed to implement all the institutional and modernization tasks included in the project, facilitating the Bank interaction with the executing agencies of the project. The following table presents a summary of the final project costs, broken down by source and category (in US$ Million): Source Appraisal Actual Estimate as of June 30, 1998 IBRD 200.0 164.2 SMMs 148.9 127.7 Government (FFM) 66.3 54.7 PFI 21.3 18.3 TOTAL 436.5 364.9 Distribution of the IBRD contribution, by category: Category Appraisal Final Estimate Cost 1. Goods and Works under subprojects 191.500' 164.159 2. Consultants' Services and Equipment 7.705 7.232 3. Operating Costs 0.545 0.275 4. Works to rehabilitate CRM's laboratory facilities 0.250 0.000 TOTAL 200.000 171.683 Project implementation, scheduled initially in the Appraisal Report for the period 1991 to 1996, with a closing date for June 1996. There were two extensions (to 1997 and 1998), resulting from delays in project execution that stemmed mainly from the economic crisis that affected the country at the end of 1994, that in due time led the commercial banks to adopt stringent conditions to finance mining subprojects. The following paragraphs discuss the main factors affecting project execution: (i) The financial participation of the commercial banks had a decreasing trend since 1996, because most of the mining subprojects required medium- and long-term credits, and the banks claimed argued that such credits were not attractive to them because their recovery would postpone the final profit margins, resulting in a loss on the original investment. This situation was originated by the economic factors that led to an accelerated number of debtors' arrears to the banks, forcing them to adopt stringent and selective practices to finance mining subprojects; (ii) The preparation and issuance of environmental regulations, stipulated their completion and enforcement in one year, not taking into consideration the long process established in the Federal Law on Meteorology and Normativity. Further delays were caused by the ministerial reorganization affecting the activities of the mining sector and the environmental agency;  32 (iii) The loan funds reallocated from Category 1, to Category 2 (a) for the preparation of the environmental regulations by DGM, could not be applied for not having been included in DGM's budgets, since 1996. Bank Performance Bank participation during project implementation, through the supervision missions, was constant and flexible facilitating amendments to the legal documents to: (i) be consistent with the problems generated by the 1994 economic crisis, including adjustments to the financial participation of the commercial banks, and changes to FFM's application of its own financial resources; and (ii) adjust them to the executing agencies' requirements, such as the dissolution of CFM and the reallocation of loan finds. Generally speaking, our assessment finds the Bank's performance throughout project preparation, appraisal and implementation, most valuable and positive. During project implementation, showed receptiveness to requests from all executing agencies and the Borrower. Borrower Performance The executing of the project was affected by problems exogenous to it, that however, did not affect the attainment of the objectives, despite that one of the goals set, namely, the preparation and enforcement of environmental regulations applicable to the mining sector, was not fully completed, and that there was an undisbursed balance of the loan. Owing to the financial difficulties created by the economic crisis, the project had to be extended twice. The closing date, which was to be 1996, had to be postponed until 1998. Even so, about 90% of the loan funds allocated to the SMMs, was efficiently invested, leaving an undisburser balance of the loan of US$ 28.3 million. We feel that: (i) FFM's performance in project execution was satisfactory; (ii) CRM's performance, with Bank support until 1996, and with the full Government support since then, was highly satisfactory, as attested by the Bank; and (iii) DGM's performance was satisfactory, as it carried out expeditiously its modernization, that has transformed it into an efficient mining resources administrator, although due to lack of he necessary financial resources, has not yet completed the environmental regulations. Assessment of Outcome Overall, the results obtained from implementation of the Mining Sector Restructuring Project can be regarded satisfactory. Summary of Findings, Future Operations, and Main Lessons Learned The preparation of a project of the scope and nature of this, requires the combination of important political decisions and the necessary technical and financial support. Targets for the achievement of all goals should ambitious but not overly optimistic. The mining sector restructuring program was created as a continuation of the modernization of the industrial productivity, to strengthen the technical capacity through training programs, and to stimulate domestic and foreign investment. The program was also the financial  33 instrument that contributed to the development of the national economy through the coordinated support of the World Bank and the Government, reflected in the loan 3359-ME. The project succeeded in establishing the institutional setup and modernizing the corresponding agencies, divesting public mining enterprises, and attracting domestic and foreign investments. Future Bank participation in the sector does not seem justified anymore, in view that mining exploration/exploitation is now open to domestic and foreign investors. World Bank User Q:\Personal\ICR.DOC 01/12/99 5:00PM