Announcement that the Bank Has Loaned the Mexican Light and power Company 26 Million US Dollars on April 28, 1950

n( 35 c.. 19-f J.,',.,'"·,,,', \ : INTERNATIONAL BANK ro:e BECONSTRUCT!ON· AND DEVELOP~ Washington FOR THE PRESS FOB. IMMEDIATE RELEASE Preas Release No. 184 April 28; 1950 ~he Internatiqnal Bank for Reconetruction 8;Jld Development today ,.grai;,.ted . a loan of $26,000,000 to tlie Mexican Light and Power Company, Ltd. (Mexligbt.) for electric power development. Part of the loan will be used to refund a sho;rt'!"ten.i·loan of $10,0(?0,000 ma.de,by the Bank in January l949, and the remaining $16,000,000 will,be used to finance additional materials a~d equipment needed for Mexlight's four-year progre.m of expansion of its electric pQwer generating, transmission and distribution facilities • • The loan is for a term Qf 25 yefU'a and c~r,ies an interest rate of 3#, 'plus commission at the rate· of 1% whicJl, 'in accordance :W'ith the Be.I1k 'a Articles of Agreement, will be allocated to its special reserve,fund. Amortization payments, calculated to ;retire the loan by maturity, will start (/' on August 1, 1953. The loan is guaranteed by the ·Mexican Governmen.t o Mexico's rapidly gJ;"owing population make$ neceijeary a corresponding rate of industrial development. There is urgent need, tperefore, .for a gr~ater supply of electric power i~ order to make posa!ble the growtb of industry. Mexligbt is responsible for the di$trib~tion of electric power to a population of ne8,J"ly three niillior.t in the MexiJ,o City area.. The power generated in its own plants is ~upplemented by power supplied by the Federal Electricity .• Conuni,aaion, an agency of tlle !4ex:f,.ca11 Government. Tbe Commission is &lso carrying out a progr~ fo-,;, the expansion of its gene;r~ti:Qg ~nd trane- , . f: '. misaion facilitiee in various parts of Mexico for "7hich the Bank  . ' ,. "" t .. - 2 - made~ long~~arm loan of $24,-100,000 in January 1949. When ·this .loan was m,de, the Bank gave particular attention to the coordination of the construction programs ·of both Mexlight and the Federal Elect:ricity Commission, as they re.lated to the Mexico City area. The eXl)ansion now being undert~ken is the mi~imum necessary to cove:r th~ needs of the r~pidlY growing popul.a,tion and ind~~try of ·this area over ·the next few years.• Mexlight·'s capital structure as it stood in Jan~ary 1949 preeent~d obstacles to a dtrect long-term Bank loan to the Company. On :receiving the Company'e assurance that during 191'-9 tt would undertake a reorganization of its capital structure so as to eliminate theee obs"tacles., th~ Ba:nk initially ma4e a one-year loan of $10 million through the inte~mediary of the Federal .Electricity Commission and Nacional Finan~iera (an Qf.fici~l Mexic$11 financing agency) to cover the needs of the construction ~~ogram during 1949. At the ••• same time the Bank assured Mexltght that, when this recapitalization was satis:f'actorily completed., it would be prepare<i to qonsider the :p.egotta.tion of' a long-rte:tm loan to finance the rem~in,ing foreign el(:cbange costs of the Company's pr9gram and·to refund the short-term loan. In view of the tact that the rec~pitalization required more ti~e to complete than was at first e~ected, the Bank agreed last December to extend the ~turity of the ahort~term loan from December 1949 to July 1, 1950. In February 1950, however, a satisf~ctory Plan of' Arr~gement for the re- ca,pitalizatt9n was approved by the Company's seeq.rity holders, and reae:tved court ~an.ction on April 12_, 1950 . • I: • .• . .. ! - 3 - •• . . The total local:currency east of the.Company's expansion program wil.l amount to about 150 million Mexican pesos, or the equivalent of about $17,000,000. In order to meat this cost the Company·reeeived a long-term loan of 44 million pesos from Nacional Financiera. The remaining local currency requirements will be met from Mexligh.t's own· resources, and in order that ~11 possible resources may be devoted to the financing of the loc~l currency costs, the Company has agreed that sinking funds should not begin and that no dividends should. be paid during the construction period. In December 1949, the Mexican authorities granted the Company a new rate structure designed to permit it to earn a reasonable rate of return. After being approved by the Bank's :Executive Directors, the Loan Agreement was aigned today by Robert L. Garne~, Vice President, on behalf of the International Bank for Reconstruction and Development and by ~ George S. Messersmith, Chairman of the Board, on behalf of.the Mexican Light and Power Company, Ltd. The GWi!,rantee Agreement was signed by Sr. Don Alfonso Cortina, Ftnancial Counselor of the Mexican :Embassy and Washington repres1entat i ve of Nacione.l Financ ie;ra, on behalf of the Uni tad .. , l ' Mexican States and of Nacional ~inanciera, and by Robert L. Garner on behalf of the International Bank. J - 4 - SUPPLEMENTAL STATEMENT ON THE MEXLIGRT l,OAN fhe Mexli~e;ht Construction Program The Mexican Light and Power Company and its subsidiaries serve the Federal District of Mexico, which includes Mexico City, and parts of the neighboring States of Mexico, HtdalgQ, Puebla~ Morelos, Guerrero and Michoacan. The area served comprises about 12,000 square miles with a population of about 3 million persona, and is the moat densely populated and industrialized part of the country. Although the population e1erved is only about 121' of the total ·:population of the country, the Mex light group furnished in 1948 to its 435,036 customers 1,217,470,036 kilowatt hoUfa, which was only slightly below 50% of the total energy generated in Me~ico. t)ntil recently, Mexlight generated, as well as distributed; p~actic~lzy all the power con,umed Jn this area. ln 1938, however, the Feder~l Electricity Comtn.tssion began 'the conatructton of a large hydroe:i_ectric development now known as the "Miguel Ale~" system. Two units of the Ixtapantongo station of this system. are now in operation at a capacity of 56,000 ltilowatts. The power produced in this syate~ ta bought end distributed by Mexlight. Mexlight 's 17 generating plants have ~ total inetall.ed capacity of about 340,000 kilowatts. · r~ recent years, the important industrial, agricultural and commerci~l • development which has ta~en place in the *exico City ~rea has made it urgent~.. necessary that existing production and distribution fac;l.lities should be greatly expanded. The Mexic&n !right and Power Company iµid the Federal Electricity Coillliliseion have therefore pre~ared a joint program, whereby Mexlight will., by 1953, ~dd 155,000 ~ilowatts to its generating capacity, a.n,d the Commission will add 170 1 000 kilowatts to tbe capacity of the "Miguel Aleman" system. All. the additional power will be distributed by Mexlight. Mexlight has at prese~t in operation 15 hydroelectric f;l.D.d 2 thermal plants, of which the inoet i~portant are; (a) Nec~a (hydro), of 99,000 ~'W (b) Nonoalco ( ate·am) ,of 80,000 KW (c) Lerma (hydro), of 52,000 KW' (d) Tepexic (hydro), of 45,000 KW (e) Tacubaya (diesel)of 31,000 KW. The major items of the present construction progra.pi being financed partly QY the ~ank's loan are as follows: (a) An additional 16,000 KW unit at the Nec~a hydroelectric plant; · (b) An additional 28,000 KW unit at the terma hydroelectric pl~t; . • (c) A pew 45,000 KW hydroelectrtc plEµit at Patla, dowp- etream from Necaxa and Tepexic;  • ,t, • ,. . . .. 5 -· ' 1l (d) A new 66,000 KW eieam plant at Lechor:la,··netµ- Mex'ico City, 1~ the center of an iinpo:rta.tit a~d; rapiq.ly develop.ing .. industrial al'fa. This plant w·ill be ~xnpo:rtant as lest;Jening the· present preponderance of hydro~lectric· powe~ in the system and thus mitigating t·he effects of dr.ous!lts on the supply of power; (e) A new 220 KV trfJ,llsm1seion line between Nec~a a?ld ?4exico City (a dist@ce ot ~ver lOO xnilea), rend$l"ed ne<:e$~ary by the overloading of the p~eaent line, and by·the addition.al capa~ity to be installed at -~~caxa and Patla. · The program also i~cludea the provision of otber transmission and distribution l!neal s~bstationa, power banks, ~ubliQ lighting transformers, meters and other &qu!pmant -necessary t9 d~al with pre~ept overlo~dipg and the new geuerati~g c~p~city which is to be instailed. Me:Jico' SJ. Economic Position T~e increase in the demand for power and in industri~l activity ia not confined to the Mexico City area. Thro-µg~out. tl+e CO\ll!r~ry industri"al and. agricultural production have displayed an upward trend over the last two years, encouraged and s1i1stained by a au'bstantial government progr~ of irrigation, road building and other public works. • Production in all fields ls at present at a high leve:J,.. in Mexico, The index of pr9duction in ~nufacturing industries is at an a~~ time high, rou.ghly 13% above its level at the end of l948. Agri~ult1,1ral prod~~tion, incl~ding that of e~ort e;r-ops, has continµed to make good progress. Cotton, for instance, haa now become the l~rg~st single export of Me~ico, and ita share t~ the value of exports increesed from 6'/o in·1948 to 16% in Ji.949. Sugar, an import before 1947, w&a exported in 1949 to a total value of over $10 million, The value of ri~e exports more than quadrv.pled between 1947 and 1949. T.hese inipfovementa in the agricultural field roughl.y compensated for a decline in the production and export of non-ferrous metals, which are being depressed by wor~d ~rket conditions. While Mexico has appro~tmately maintai,ned its level of e~ports (as e~preaaed in dolle,;r~), its·~ports lu\ve declined and its tourist receipts have increased. Thi~ is du~ in p~t to the higher pr~ces fo~ imported goods brought about by the depreciation of the peso and by impQft restriction~. But the ~ain reason for tlle inip;rovement of the internattonal payments position of the co~~try has been the pol,icy of a balanced budget and of credit reatrictiotrs followed by the gover:pment a ince the end of _1948. Ae a :result of this policy of finaneial equiliQriU?n, since the stabilization of the peso at tbe rate of 8.65 to a dollar in June l949, the monetary reserves of the Banco de Mexico have shown a eubi:,3tant1ai inoreaae, notwithst~;nding the rep~ent of $22 million to the U.S. ireaeury Stabilization Fund. There ia no reason to e~eet a ~eve~aa~ ot these favorabl~ tre~ds in • the Mex1ean eco!lomy ~El long· a$ the Mf)~i~~ Gove;rnment contin\les :i, t$ strtq;ix internal fif.\aticial :policies, fijld ~ lotle; a~ econ.om;f.c activtty ti.J. the· United Ste.tea, Mexico• e largest eustome:r '3oJld euppl!er, ie ~:l.~tai:n~4 >~rt or near l)res ent ler11e le • · , ,