Mexico - Second Railway Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 2562 PROJECT PERFORMANCE AUDIT REPORT MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) June 27, 1979 Operations Evaluation Department 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) Table of Contents Page No. PREFACE ii PROJECT PERFORMANCE AUDIT BASIC DATA SHEET iii PROJECT PERFORMANCE AUDIT MEMORANDUM (HIGHLIGHTS) iv-v ANNEX: BORROWER'S COMMENTS vi-vii ATTACHMENT I: PROJECT COMPLETION REPORT (BANK) I. Introduction 1 II. Project Preparation and Appraisal 2 III. Project Implementation and Cost 3 IV. Traffic and Operations 6 V. Financial Performance 8 VI. Institutional Performance and Development 13 VII. Economic Reevaluation 15 VIII. The Role of the Bank 17 IX. Conclusions 19 Tables 1. Actual and Expected Physical Completion 20 2. Actual and Appraisal Estimates of Project Cost 21-22 3. Disbursement Schedule 23 4. Actual and Forecast Traffic 24 5. Selected Operating Statistics (1972-1976) 25 6. Execution of Plan of Action 1972-1976 26 7. Income Account 27 8. Summary Balance Sheets 1967-1977 28 9. Actual and Appraisal Expectation of Financing during Project Period 29 ATTACHMENT II: PROJECT COMPLETION REPORT (BORROWER) I. Introduction 30 II. Project Preparation and Appraisal 30 III. Project Execution and Cost 30 IV. Traffic and Operations 39 V. Borrower's Financial Report 42 VI. Institutional Development 46 VII. Economic Evaluation 55 VIII. Role of the World Bank 89 IX. Conclusions 90 Map 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 Worki Bank authorization.  - ii - PROJECT PERFORMANCE AUDIT REPORT MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) Preface This report presents a performance audit of the Mexico Second Railway Project for which Loan 825-ME in the amount of US$75 million was closed fully disbursed in December 1977. It consists of a memorandum (Highlights), prepared by the Operations Evaluation Department (OED), a Project Completion Report (PCR), prepared by the Bank's Latin America and Caribbean Regional Office, and a PCR prepared by the Borrower, National Railways of Mexico (N de M). OED has reviewed the two PCRs against the Appraisal and Pres- ident's Reports, and read the minutes of the Executive Directors' meeting which considered the project. On the basis of the above, OED has found that the PCRs cover in a comprehensive manner the implementation experi- ence of this project. The Borrower's PCR represents a substantial con- tribution to the audit process and is one of the most comprehensive PCRs so far received from the Bank's borrowers. The Bank's PCR further pro- vides critical analyses of lessons and issues arising from the experience of project execution. Comments made by OED on an earlier draft of the Bank's PCR are reflected in the present version. On the basis of this limited review process, OED has accepted the analysis and conclusions of the two PCRs and has summarized in the memorandum the main findings of the Bank's PCR, which is partly based on the Borrower's PCR. However, OED staff, during a visit to Mexico in Jan- uary 1979 in connection with another project audit, had opportunities to meet with Government and N de M officers to exchange views and clarify certain aspects of the PCRs. Among the comments made by N de M officers during the meetings were: the good results of consultants' technical as- sistance for improvement of the telecommunication and operational control systems, the difficulty in trying to limit the growth of its staff size due to problems with labor unions and a lack of adequate pension provi- sions, and the useful contributions made by various studies carried out under the project, such as the manpower and tariff studies. Officials of the Finance Ministry commented, concerning the overall Bank loan operation in Mexico, on the increasing financial burden on the Government arising from the foreign exchange risks it bears and the fact that the Borrower does not have the choice on the currency of disbursement. The cooperation received from the Government and N de M is gratefully acknowledged. The comments received from the Borrower on the draft PPAR were reflected in the report and are reproduced as Annex to the audit memorandum.  PROJECT PERFORMANCE AUDIT BASIC DATA SHEET MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) KEY PROJECT DATA Original Actual or Item Plan Current Estimate Total Project Cost (US$ Million) 202.8 227.3 Overrun (2) 12 Loan Amount (US$ Million) 75.0 75.0 Disbursed ) 75.0 Cancelled ) as of February 28, 1979 2 Repaid )2.68 Borrower's Obligation ) 86.51 1/ Date Physical Components (civil works) Completed 12/76 12/77 Proportion Completed by above Date (%) 91 100 Proportion of Time Overrun (2) 9 Economic Rate of Return (%) 18 20 Financial Performance Below expectation Institutional Performance Good Guarantor's Performance Good Cumulative Estimated and Actual Disbursements (US$ Million) FY73 FY74 FY75 FY76 FY77 FY78 (i) Estimated 32.0 62.0 75.0 75.0 75.0 75.0 (ii) Actual 2.2 34.9 47.9 66.2 72.1 75.0 % of (ii) to (i) 6.9 56.3 63.9 88.3 96.1 100.0 OTHER PROJECT DATA Original Actual or Item Plan Revisions Current Estimate First Mention in Timetables 4/01/70 Government's Application 4/01/70 Negotiations 4/ -/72 Board Approval 5/23/72 Loan Agreement 6/02/72 Effectiveness 8/17/72 Closing Date 12/31/75 12/31/77 12/31/77 Borrower National Railways of Mexico (N de M) Executing Agency N de M Fiscal Year of Borrower January 1 - December 31 Follow-on Project Name Third Railway Project Loan Number Loan 1232-ME Loan Amount (US$ Million) 100.0 Loan Agreement Date 4/30/76 MISSION DATA Month/ No. of No. of Date of Item Year Weeks Persons Man-weeks Report Identification/ Preparation 1/71 2 4 8 1/71 Preappraisal 3-4/71 3 3 9 5/71 Appraisal 9/71 3 4 12 5/72 Total 8 29 Supervision I 7/72 2 2 4 8/72 Supervision II 11/72 1 2 2 12/72 Supervision III 3-4/73 2 4 8 4/73 Supervision IV 7/73 1 2 2 9/73 Supervision V 11-12/73 3 3 9 1/74 Supervision VI 4/75 2 5 10 6/75 Supervision VII 11/76 2 2 4 12/76 Supervision VIII 5/77 1 2 2 5/77 Supervision IX 9/77 2 4 8 10/77 Total 16 49 COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Mexican Peso (Mex$) Appraisal Year Average (1972) Exchange Rate: US$1 - Mex$12.50 Intervening Years Average US$1 - Mex$12.50 Completion Year Average US$1 - Mex$22.50 1/ Includes US$14-19 million for exchange adjustment.  - iv - PROJECT PERFORMANCE AUDIT MEMORANDUM (HIGHLIGHTS) MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) Loan 825-ME for US$75 million was to support the execution of the 1972-73 Investment Plan of the National Railways of Mexico (Ferro- carriles Nacionales de Mexico, abbreviated "N de M") aimed at improving its operational performance and financial viability. The principal com- ponents of the project are: (a) purchase of freight cars, locomotives and spare parts, passenger cars, and track and workshop machinery; (b) rehabilitation of the track bridges and terminals; (c) rehabilitation of the telecommunications network; and (d) technical assistance to improve planning for N de M and the transport sector as a whole. To achieve the objectives of the project, and therefore of N de M's 1972-73 Investment Plan, a Plan of Action was agreed, specifically setting out (a) quanti- tative operating targets through 1976, (b) measures to realize a ratio- nalization of tariffs through a traffic costing system, and (c) actions to reduce deficits on low density branch lines and passenger services (PCR, para. 2.03). Implementation of the physical aspects of the project generally followed the original project description (PCR, paras 3.02-3.03), except for some major changes in the telecommunications component (PCR, para. 3.03(d)). The project implementation was delayed by a year, but 91% of the work was done by the original closing date. The cost of the project increased by about 12% (18% in terms of Mexican pesos). Much of the cost increase was in local expenditures, the overrun in foreign exchange ex- penditure having been only 1.8%. The principal reasons for the delay were: (a) the original implementation plan was over-optimistic; and (b) N de M had difficulty in following the Bank's procurement procedures, as this was the first Bank project for N de M. In the end, however, procurement was carried out fully in conformity with the Bank's international compe- titive bidding procedures (PCR, para. 3.04). The technical assistance was very satisfactorily implemented by consultants whose relationship with N de M staff was good. The consul- tants' work formed the basis for reorganization of N de M, setting up of a cost accounting system, and for a follow-up Bank railway project. The consultants' contribution to the installation of an up-to-date telecom- munications system and Operational Control System (OCS) was particularly noteworthy (PCR, paras 3.05-3.07). The railway operational targets agreed were generally met or ex- ceeded (PCR, para. 4.05). Despite the operating improvements and higher- than-projected freight traffic, N de M's financial condition did not im- prove. While revenues increased only slowly because tariff increases were less than anticipated, the operating expenditure increased rapidly, due to inflation and staff increase, with the result that net operating deficits for 1972-76 were nearly four times higher than the projected level (PCR, para. 5.01). - v - The overall economic rate of return upon completion of the proj- ect is 20% compared with 18% estimated at the time of appraisal. Construc- tion of sidings and replacement of sleepers are largely responsible for the improved return. The following points may be of particular interest: - the Government's decision to operate N de M as business enterprise (PCR, para. 2.01); - major revision of the telecommunications com- ponent, which had far-reaching implications for improved railway operation (PCR, paras 3.03(d) and 8.03); - underestimation of freight traffic at appraisal (PCR, para. 4.02); - a corporate plan designed to achieve operating targets and its successful implementation (PCR, para. 4.05); - over-optimistic assumptions at appraisal (PCR, para. 8.05). Specifically: (a) the time re- quired for project implementation and loan dis- bursement (paras 3.02 and 3.04); (b) the year 1981 as target date for financial viability of N de M (para. 5.06(v)(e)); (c) the requirement to prepare and introduce a corporate plan by 1973 by all other railways in Mexico (other than N de M) to achieve financial viability also by 1981 (para. 5.06(ix)); and (d) a target for N de M's staff strength set without detailed studies of manpower requirements (para. 4.08); and - unrealistic or over-ambitious loan covenants (PCR, paras 5.06(v) and (ix), 9.07, 9.08). - vi - ANNEX IBRD LANGUAGE SMRVCES DISION CONTROL No. E-1U9/79 IDATE: June 7. 1979 ORIGINAL LANGUAGEt Spanish (Mexico) DEPT, Operations EvalnITRAMS1AToR: GAG/// BORROWER'S COMMENTS Office of the Director General Mexico City, FERROCARRILES NACIONALES DE MEXICO May 30, 1979 (Mexican National Railways) Mr. Shiv S. Kapur LGZ-15/h31/41 Director Operations Evaluation Department IBRD, Washington, D.C. I refer to your letter of May 4, 1979, enclosing the draft Audit Report on IBRD Loan 825-ME (US$75 million). In general, we agree with the content of the Report. We have a few small comments to make, as follows: Page (iii) Outstanding amortization payments as of February 28, 1979, included US$11.19 million for exchange differences (BORROWER'S OBLIGATION) which were estimated by the World Bank and in the calculation of which Mexican Railways staff did not participate. Attachment 1 Page 7 In the part relating to Operations it is stated that the coefficient of availability of locomotives is represented by the percentage of loco- motives undergoing repair, instead of by the percentage of locomotives in service. With regard to the figure of tons-kms per available car-day, we wish to advise you that owing to defects both in the source information and in the computer programs, the figures we have are not reliable. - vii - As regards the variable cost per gross ton-km of US$0.60 in 1974 and US$0.b7 in 1976, there must be an error. According to data supplied recently to the World Bank mission, these costs should be Mex$0.06 and Mex$0.09, respectively. Page 13 In para. 6.2 it is stated that the Railways have a new regional organization. I think I must remind you that that organization disappeared in 1977. Page 23 On the line for the quarter ended December 31, 1973, in the column headed Cumulative (Original), the figure should be 49.0 instead of 99.0. On the next line, in the column headed Quarterly (Original), the amount should be 6.0 instead of 8.0. On the line containing the data for the quarter ended March 31, 1975, under Cumulative (Original), 79.0 has been entered instead of 74.0. Page 27 On the line Working Ratio (excl. Gov't compensation), 155 has been entered instead of 157. On the next line, Gross Operating Ratio (incl. Gov't compensation), the correct figure is 151. It is pointed out that the Audit Report did not state that the financial situation shown should have been better as a consequence of the increase in the value of the Company's fixed assets,following the devaluation of the Mexican peso, which was not recorded. Yours truly, /s/ Luis G6mez Z. Director General ATTACHMENT I PROJECT COMPLETION REPORT MEXICO SECOND RAILWAY PROJECT (LOAN 825-ME) I. INTRODUCTION 1.01 Transport has played an important role in the economic development of Mexico and has, over the years, received consistent support in terms of public investment, receiving slightly less than 20% of the budget allocation through 1974. For 1975 and 1976, the percentage dropped to 14% and 12%, respectively, indicating a possible change in its future status,in the overall public sector plan. Other than public investment, however, a major reason for the general adequacy of transport has been the existence of a privately financed bus and truck industry that has operated under few Government restric- tions. Thus, on the supply side, the public sector has, until recently, pro- vided adequate support for transport investment in all modes, while the private sector has provided an adequate fleet of road vehicles and levels of service. Available evidence, in the form of GDP components, road vehicle traffic counts, and actual rail and air traffic figures, has indicated that demand for trans- port has been growing in excess of 8% annually during a period in which GDP has been growing slightly in excess of 6% annually. 1.02 The two major transport modes are road and rail. Pipelines and coastal shipping are important, but specialized, while aviation, the most dynamic mode in terms of growth, is highly specialized and relatively small in terms of output. Ports and the merchant marine are naturally related to road and rail traffic and have been of increasing importance in recent years. The most recent data available for estimating the relative importance of the road, rail, and air modes in terms of output are from 1972. A that time, it was estimated that road transport accounted for 69% of intercity freight ton-km, with rail accounting for 31%. For passengers, it was estimated that road transport accounted for 90% of intercity pass-km, with 6% for rail and 4% for aviation. All available evidence indicates that, since 1972, the road and aviation share of intercity traffic has been increasing relative to rail. 1.03 In terms of public investments over the period 1971-1976, highways received 57% of total transport investment followed by railways with 26%, ports with 10% and aviation with 4%. If consideration is taken of private sector investment in the form of road vehicles, total investments were roughly pro- portional to traffic shares. 1.04 The Mexican railway network has about 19,000 route-km of standard gauge track, compared to the approximately 39,000 km of major federal highways (there are another 21,000 km of paved state and local roads). The railways are well run and have experienced.an average annual growth rate in traffic approximating that of GDP, i.e., in excess of 6% per year. The presence of large amounts of bulk, long-haul traffic such as foodgrains, fertilizers, and minerals has led to an important role for rail freight traffic. In spite of favorable traffic conditions, good management, and improving operational efficiency, the railway runs a large deficit, because of inadequate tariffs and fares, requiring an annual Government subsidy of approximately US$220 million. - 2 - 1.05 The Bank, to date, has made 12 loans to Mexico for transport--seven for highways (an eighth program loan is being prepared), three for railways, one for airports (a second aviation loan is being prepared), and one for ports. This Project Completion report covers Loan 825-ME, Mexico Second Railways Project, for US$75 million, dated April 23, 1972. II. PROJECT PREPARATION AND APPRAISAL Background 2.01 In 1970, the Government of Mexico and Ferrocarriles Nacionales de Mexico (N de M) asked the Bank for assistance in order to modernize and renew the plant and equipment of N de M, to improve operations and to reduce the financial deficits of the railway. In April 1970, at the request of the Government, the Bank sent a Transport Sector mission to study improvements needed in all modes of transport. In April 1971, the Board of N de M adopted a statement of railway policy signifying that the Mexican railways would be operated on business principles, and that action would be taken to progres- sively achieve financial stability. During 1970 and 1971, consultants from Canadian National Railways, with Mexican counterparts, studied the problems of N de M. The implementation of the consultants' recommendations produced good results and paved the way for the preparation of investment and action plans which formed the basis of the appraisal of this project. 2.02 This was the second project for Mexican Railways. The first railway project, which formed the basis for a loan (103-ME) of US$61 million for the rehabilitation and modernization of the Ferrocarriles del Pacifico, was made in 1954, and the works were completed in the late fifties. The second project was appraised in September/October 1971 and resulted in a loan of US$75 million. Project Description and Goals 2.03 The project was based on the 1972-73 Investment Plan of N de M, supplemented and supported by a Plan of Action aimed at improving the oper- ational performance and financial viability of N de M. The principal compo- nents of the Investment Plan were: (a) purchase of freightcars, locomotives and spare parts, passenger cars, and track and workshop machinery; (b) rehab- ilitation of the track bridges and terminals; (c) rehabilitation of the tele- communications network; and (d) technical assistance to strengthen and improve the railway's planning as well as the sectoral planning directorate of the Secretaria de Comunicaciones y Transporte (SCT). The Plan of Action set out generally to improve the operations and financial viability of N de M and specifically to (a) prepare a corporate plan for the achievement of agreed quantitative operating targets through 1976; (b) set up a traffic costing system for the rationalization of freight tariffs and passenger fares; and (c) reduce deficits on low density branch lines and passenger services. - 3 - 2.04 Midway through the implementation of the project, the telecommunica- tions portion, in accordance with recommendations of the consultants and with the approval of the Bank, underwent a radical change resulting in the incorporation of a UHF/VHF system in lieu of the existing openwire system (para 3.03 following), in order to make N de M the first railway system in Latin America to have a modern telecommunications network. III. PROJECT IMPLEMENTATION AND COST 3.01 Implementation of the physical aspects of the project generally followed the original pattern, although there were some changes in the scope of individual items. Table 1 gives details of the physical completion of each item of the project in juxtaposition with the expected completion as foreseen during appraisal. Table 2 details the actual costs in comparison with the appraisal cost estimates. Project Cost 3.02 An analysis of Tables 1 and 2 indicates that the main features of the project implementation were as follows: (a) The project was completed in December 1977 instead of December 1976 as originally planned. (b) The actual cost of the project, at Mex$3,004 million, was 18.5% higher than the appraisal estimate of Mex$ 2,536 million including contingencies. In terms of US dollars, the actual cost at $227.3 million was 12% higher than the appraisal esti- mate of $202.8 million including contingencies. (c) Local costs, at Mex$1,568.7 million, were 39% above the appraisal estimate of Mex$1,126 million. Foreign exchange costs, at Mex$1,435.7 million, were marginally (1.8%) above appraisal estimates of Mex$1,410 million. In US dollars, local costs went up 30%, and foreign exchange costs went down 3% in comparison with appraisal estimates. This occurred largely as a result of the devaluation of the Mexican peso in 1976. (d) Ninety-one percent of the investments in the project were made by the end of 1976. Project Composition 3.03 The important adjustments made in the project scope after effective- ness arose principally from changes in the needs of the railway. These changes, which were made as the project progressed, were discussed by Bank Missions and were agreed by exchange of letters and reallocation of funds (para 3.04). The principal changes are summarized below: -4- (a) Track Structures Some 723 km of track were rehabilitated at a cost of Mex$525.8 million, as against 690 km foreseen during appraisal, at a cost of Mex$236 million. Details of the track renovation program are given in the map at Annex 1. Cost increases took place largely in local works which cost Mex$278.8 million instead of Mex$39.0 million foreseen, the increase being largely due to poor estimation and inflation. Foreign costs increased mainly because rails were purchased at a higher average price than anticipated. The other major items for which costs increased substantially were track machinery and ballast wagons which cost more mainly because of some increase in the amount of machinery and the number of ballast wagons purchased. The sleeper program was implemented inadequately and instead of 2 million sleepers planned for replacement by bank financing only 927,500 were replaced. The shortfall was caused principally by the failure of FONAFE, the Mexican suppliers of sleepers, to supply the requested quantities of hardwood wooden sleepers, which had to be made up by the purchase of softwood sleepers from local suppliers. From the records, it is seen that orders for hardwood sleepers were placed on HONDUMEX, a supplier from Honduras, and FONAFE, a Mexican supplier. The former completed deliveries more or less as contracted, whereas the latter (FONAFE) defaulted substantially. In restrospect, it appears that the price quoted by FONAFE was too low at $5.26 per sleeper (as compared with HONDUMEX's price of $11.50 per sleeper), and led to the supplier's failure to comply with the contractual commitment. (b) Construction The construction works in the workshops, sheds, stations, etc., were carried out nearly according to the original pattern. (c) Motive Power and Rolling Stock For increasing the locomotive fleet and for replacement of locomotives in bad condition, the project included $420 million for the purchase of 90 locomotives with a total horsepower of 270,000. This target was met within the years 1972 and 1973 by the purchase of 84 locomotives with a total horsepower of 274,000 at a cost of $355.3 million. 1/ The cost of wagons purchased increased 31% over appraisal estimates mainly because wagon purchases were adjusted to suit current requirements and N de M purchased 3,450 units (instead of 2,800) of which 1,700 were financed completely by the Bank and 1950 partly financed for imported components only. This was achieved by relegating 1/ In addition N de M purchased, outside the Bank project, 60 locomotives with a total horsepower of 90,000. No locomotive purchases were financed from the Bank loan. - 5 - the purchase of passenger cars 1/ and postal vans to the next project. Since freight traffic increased significantly during the years 1972-1976 (para 4.02), the purchase of additional freight cars instead of passenger coaches proved to be basically sound strategy. (d) Telecommunications The telecommunications part of the project underwent a complete change of concept; on the recommendations of the consultants (Tops-on-Line, USA) and after careful examination by the Bank, it was decided to replace the rundown openwire telephone system with a UHF/VHF network spanning the entire railway system. Economic evaluation for the UHF/VHF system, prepared by Tops-on-Line, proved that the benefits accruing from the higher investment in terms of improved operations, savings in freight cars, etc., would justify the higher investment in telecommunications. The foreign exchange component of this system (US$26.6 million) was financed partly from Loan 825-ME (US$13.4 million) and partly from the next Loan 1232-ME (US$13.2 million). This part of the project, which brought about far-reaching changes in the operations of the railway, links the second and third railway projects. (e) Consultancy Services The technical assistance in the project was implemented approximately in accordance with the original pattern. Procurement 3.04 Procurement and disbursement proceeded more slowly than expected for two reasons: (a) the original disbursement schedule was overoptimistic, e.g., disbursement of US$16 million was forecast in 1972 even though the loan became effective in August 1972, and (b) since this was its first encounter with international bidding under a World Bank loan 2/, N de M took a longer time not only to prepare tender documents and specifications but also to evaluate the bids. Table 3 shows the disbursements in comparison with the disbursement schedule prepared during appraisal. All equipment, rolling stock and machinery financed from the Bank loan was purchased by means of interna- tional competitive bidding (ICB) and in accordance with Bank guidelines; changes in quantities were approved by the Bank at the appropriate stage; and reallocation of funds was authorized on November 28, 1974 and June 30, 1977. Freight cars purchased by reserved procurement from Constructora Nacional de Carros were procured at prices in accordance with the formula laid down under the Loan Agreement, defining the price range in relation to the freight cars procured by ICB. 1/ The Third Railway Project included 200 passenger cars and 30 mailvans. 2/ The first railway loan was to Ferrocarril del Pacifico, which has its headquarters in Guadalajara. -6- Consultants' Performance 3.05 Consultants Tops-on-Line of the Southern Pacific Railroad were engaged to improve the operations of N de M in the fields of corporate plan- ning, line and yard operations, locomotive and car control, locomotive and car maintenance, telecommunications, costing and accounting. By any standards, this is an impressive list of activities. Tops-on-Line fielded 26 consultants (17,560 man-hours) with a wide range of expertise. Some of the key personnel spoke Spanish fluently. The work done by the consultants formed the basis for the reorganization of N de M according to the regional system, led to the establishment of a costing and accounting system, and paved the way for the development of the 1975-1979 Investment Plan, which, in turn, formed the basis for the Third Railway Project. 3.06 In the field of operations, Tops-on-Line established the Power Control Center for the coordination of locomotive movements and initiated work on car control in the Valle de Mexico yard. The Aguas Calientes freight- car workshops were completely reorganized, and a series of procedures and policies were laid down for locomotive maintenance and the locomotive retire- ment program. The consultants played a leading role in the development of specifications for the VHF/UHF telecommunications system introduced in this project, as well as for the Operational Control System (OCS) introduced in the following project. 3.07 Except for some preliminary problems at the start of the project, collaboration between the consultants and the railway personnel was generally good and productive of results. IV. TRAFFIC AND OPERATIONS Performance of the Economy 4.01 At the time of appraisal in 1971, data available indicated that the Mexican economy had been performing well, with average annual growth rates in real GDP in excess of 6% and price inflation running at about 3% per annum. This trend continued through 1972, at which point a strong and continuous inflation commenced with price increases of approximately 15 to 20% per annum through 1978. By 1975, an economic recession had set in with GDP growth rates felt to 4.3% in 1975, 2.0% in 1976. In August 1976 the peso was devalued from 12.50 to the US$ to approximately 23 to the US$. The period of imple- mentation of the loan was thus one of considerable economic upheaval since the execution of the investment program extended from 1975 through 1977. Traffic 4.02 In the appraisal report, it was noted that the growth in rail freight traffic was correlated with GDP growth rates, and a traffic growth rate of 4.7% per annum was selected for traffic projection between the years 1970 and 1974, slightly lower than expected growth rates in GDP. Traffic activity grew at 6.7% (Table 4) during this period, slightly in excess of the - 7 - average GDP growth rate of 6.2%. Thus freight traffic between 1970 and 1976 was higher than the appraisal projection, with 26.8 billion ton-km in 1976 instead of 23.6 billion ton-km, a 14% difference. Part of the difference can be explained by an increase in average haul distance in 1976 to 523 km instead of the 498 km projected at appraisal time and artificially low tariffs due to failure of the Government to raise freight rates to expected levels. It did, however, ensure the use of the investments carried out. 4.03 For passengers, the situation was considerably different. The appraisal mission projected an annual decrease in traffic of 5% per annum from 1970 to 1976. As shown in Table 4, this is precisely what happened although 1978 figures indicate an increase back to 1970 levels. In general, a decline in passenger traffic is a favorable occurrence since passenger operations generate revenues far below variable costs, and the studies of low density branch lines and uneconomic passenger service were expected to lead to a contraction of passenger services. This contraction took place as expected through 1977, although 1978 traffic indicates a reversal of the trend due to population growth and extremely low passenger fares, far below those of competing bus operations and far below any reasonable measure of variable cost. The passenger km increase in 1977-78, however, took place without any increase in passenger train-km. 4.04 In general, the traffic projections in the appraisal report were con- servative but this did not interfere with a realistic assessment of the invest- ment requirements and their economic justification. Operations 4.05 Selected operating statistics for N de M for the years 1972 to 1976 are given in Table 5. The period of implementation of this project was one of substantial increase in the traffic carried by the railway (para 4.02). Operating targets for the period 1972-1976 were spelled out in the Plan of Action. A corporate plan designed to achieve these targets was drawn up and agreed upon between N de M and the Bank on August 1, 1973. This plan detailed the various measures to be taken by N de M in all aspects of railways oper- ations. Table 6 gives details of the performance of the railway with respect to the principal operating indices. With two important exceptions (see paras 4.07 and 4.08), targets were generally met or exceeded. Net ton-km per freight train have improved steadily and exceeded the appraisal targets, reflecting an increase in railway traffic and a general improvement in operations. The .utilization of locomotives improved, although the availability remained low in comparison with appraisal targets. The availability of wagons remained con- sistently better than the appraisal targets. The reduction in the variable costs per gross ton-km from Mex$0.06 in 1974 to Mex$0.047 in 1976 (both in con- stant 1974 pesos) provided a clear indication of the improvement of operations. 4.06 The next railway project was appraised in April 1975, and its imple- mentation started in June 1976. Therefore, some of the improvements that took place from 1976 onwards are attributable to the third railway project. Not- withstanding this consideration, significant improvements came from the second - 8 - project and, among these, may be included the setting up of the Power Control Center (for locomotive utilization) and the initiation of work on the VHF/UHF telecommunications network which continued into the next project. 4.07 Despite operating improvements, the operating ratio did not improve, principally because of inadequate tariff increases (Chapter V). 4.08 The target of 59,000 for the staff strength was never met, and the number of personnel steadily increased from 59,633 in 1972 to 61,907 in 1976. N de M maintained that staff could not be reduced because increases in traffic and operations during the period under review did not permit staff layoffs (which were also difficult because of the complicated labor agreements with the unions). Indeed, it would appear that the target of 59,000 was laid down without detailed studies of manpower requirements, and, for this reason, the preparation of a detailed manpower plan was set forth as one of the main requirements of the plan of action in the third project (1232-ME). It is, however, pertinent to mention here that the traffic units per employee improved steadily from 377 in 1972 to 464 in 1976 (Table 5). V. FINANCIAL PERFORMANCE 5.01 The comparison of actual financial results with appraisal projec- tions for the period 1972-1976 indicates that, while the actual total revenues of Mex$18.6 billion were 23% higher than the projected Mex$15.1 billion, the operating expenditures of Mex$26.4 billion were 31% higher than the projected Mex$20.2 billion (Table 7). The increases in revenues resulted from traffic increase, which was higher than anticipated (para 4.02) larger average hauls (para 4.02) and the return of taxes by the Government to N de M (para 5.06 (viii)). Actual net operating deficits for 1972-1976, Mex$8.5 billion, were nearly four times higher than the projected deficits of Mex$2.4 billion. Consequently, the actual operating ratios deteriorated from 144 in 1972 to 156 in 1974, and, although there was an improvement to 126 in 1975 (due to a substantial tariff increase), the figure deteriorated to 164 following the massive devaluation of the Mexican peso. Appraisal estimates projected a steady improvement from 143 in 1972 to 117 in 1976. The main reasons for the deviation are discussed below. (a) Tariff increases were less than anticipated. Appraisal estimates assumed that freight rates to the public would be increased in 1974 and 1976 to the extent necessary (i) in accordance with the principle of covering long-run variable costs and making some contribution to fixed costs and (ii) to compensate for inflation. The increases were assumed to generate additional revenues of Mex$325 million for each of the years 1974 and 1976. Section 3.09 of the Guarantee Agreement also stated that the Government would increase rates, fares and other charges from time to time so that the financial targets are met. In actual experience, the rates were never increased until January 1975. After several discussions between the Government and the Bank missions, tariffs were raised by 44% for freight service, 40% for express service and 22% for passenger service. Following these increases, the -9- financial position improved substantially and the operating ratio was better than the target for 1975 (actual 126 versus target 130). However, there followed another long gap in tariff increases, and it was not until late 1976, when the Government granted tariff increases of only 38%, in two stages, as a consequence of a major devaluation of the Mexican peso in September 1976, that the peso value dropped by over 80%. These tariff increases, however, were not adequate to absorb cost increases. Since the operating costs were much higher than revenues, a smaller increase in costs would have needed a much higher increase in tariffs just to cover infla- tion. The financial condition deteriorated, and the operating ratio increased to 164 in 1976, improving to 141 in 1977. The next tariff increase was made in January 1978, and the operating ratio for 1978 has been 119. (b) Operating costs were higher than estimated. The appraisal forecast assumed an increase in staff costs of about 15% every two years starting from 1972, and no increase in the then staff strength of 59,000. Experience showed a considerable increase in staff costs, mainly for two reasons: (i) Inflation after 1972 was much more severe than anticipated and took a serious turn when the peso was devalued in 1976. Staff costs increased, on the average, by 11.4% in 1972, 20% in 1973, 22% in 1974, 16% in 1975, and 27.7% in 1976. (ii) The number of staff increased to 59,893 within one year in 1973, steadily increasing to 61,907 in 1976 (para 4.08). Furthermore, there were some 15,000 employees due to be retired in 1973, who could not be retired because N de M did not have funds to pay their pensions. The number of eligible retirees has been growing, and has resulted in N de M carrying on its payroll an increasing number of staff whose efficiency has declined. This problem was pursued during the Third Project (para 4.08), and Bank missions during the past few years have repeatedly urged the solution of this matter by transfer to the Social Security System. Latest reports from N de M indicate that negotiations between N de M an the Government have reached an advanced stage, and a settlement may be expected within one year. The problem should, perhaps, have been tackled more seriously in the Second Project, and an agreement should have been reached with the borrower and the guarantor for necessary actions to be taken. 5.02 Since the railway's operational performance was generally satisfac- tory (paras 4.05 to 4.07) and the economic reevaluation was positive (paras 6.01 and 6.02), it would have been logical to expect the financial results also to be good. This did not happen, and appraisal targets were not met because of reasons given above, but principally because the Government did not take timely and adequate action to increase tariffs. - 10 - 5.03 The rate of return on net fixed assets was neither calculated at appraisal time nor can it now be calculated based on actual experience because, in either case, no net operating revenue was generated between 1972-1976. 5.04 The Balance Sheet (Table 8) indicates that, between 1972 and 1976, the debt/equity ratio deteriorated considerably and did not meet the targets except for 1972. The ratio deterioration was from 16/84 in 1972 to 55/45 in 1976, against the appraisal projections of 16/84 and 18/82 for the same period. The main reasons for such deterioration were: (a) a more than expected increase of long term loans other than the Bank loan, (b) the major devalua- tion of the peso and (c) a decrease in net equity due to higher than expected accumulated deficits. 5.05 Table 2A demonstrates the expected and actual project cost and Table 9 the sources of financing. The total project cost was US$227.3 million as against the appraisal forecast of US$202.8 million. With regard to foreign currency, the Bank's actual contribution of US$75.0 million was on target, but only US$34.7 million (all foreign) of the US$37.8 million which was expected to be financed from foreign and local sources was financed (Table 9). With regard to local currency, the Government provided Mex$101.8 million and the local lenders provided Mex$1,460.7 million as against the appraisal expecta- tion Mex$600.0 million and Mex$526.0 million, respectively. The shortfall from the Government side (about Mex$500.0 million) and the cost overruns (about Mex$440.0 million) were secured from local loans. These extra loans increased the debt service charges as well as the net deficits. However, the Government pays the debt service charges. Financial Covenants 5.06 The loan documents included regular as well as specific financial covenants, some of which were met by the borrower and the guarantor and some of which were not, for various reasons. The performance with respect to principal covenants is discussed below: (i) Insurance - Sections 3.03 and 4.01 of the Loan Agreement. N de M insured the imported goods financed out of the proceeds of the loan as required by Section 3.03. As for the insurance against other properties (Section 4.01), N de M has an insurance policy with Aseguradora Mexicana to cover the headquarter building and the telecommunications material and equipment for Mex$400 million. N de M provided annual reserves to self-insure repairs and maintenance of the track, motive power and rolling stock necessitated by accidental damages but this was only a bookkeeping entry. Furthermore, the costs are paid regularly by the Government through the National Budget each year. The Government is satisfied with this system; N de M has discontinued the self-insurance scheme. However, the external auditors have suggested adoption of an adequate - 11 - self-insurance plan. At present, this point is under discussion by a special commission. 1/ (ii) Auditors - Section 5.02 of the Loan Agreement. The auditing was satisfactory but the reports have been three to five months late every year. (iii) Debt Limitation - Section 5.03 of the Loan Agreement. This section required that N de M's short and medium-term borrowings were not to be more than 10% of the total capitalization. N de M complied with this section during years 1973-75, but, for 1976, the rate was 11.1% because of a major devaluation of the peso. The Bank has had no objection since this situation was unavoidable. (iv) Common Tariff - Section 5.05 of the Loan Agreement. This section required that the Government and all the railways of Mexico introduce common tariffs by December 31, 1975. It was fully complied with almost a year in advance. (v) Plan of Action - Schedule 5 of the Loan Agreement. The performance with regard to the specific financial covenants included in the Plan of Action was as follows: (a) The operating ratios did not meet the targets between 1973 and 1976 except for 1975, for reasons explained earlier in paragraph 5.01(a). (b) The traffic costing system was established on May 31, 1974 as against the target of December 31, 1972. The revised date was agreed with the Bank. (c) The Government paid the cost of carrying mail via N de M during 1972-1976 but only to the extent that the Bank appraisal mission had estimated in 1972. The actual costs incurred were higher than estimated, but the difference was covered through the subsidy which the Government paid each year. (d) The Transport Sector Report on Mexico, prepared in 1964, identified 34 low traffic density lines totaling 2,600 km. Following this report, the Plan of Action asked for a program for the curtailment or abandonment of uneconomic lines and services to be prepared by N de M by December 31, 1972. This date was later revised to August 31, 1975 in agreement with the Bank. To date, N de M has carried out cost studies for 22 lines, of which 12 have either been abandoned or services 1/ Comision Tripartita para Corregir los Problemas Contables que Afectan la Presentacion de los Estados Financieros de FNM formed by the.Government with members from N de M, the Government and auditors whose purpose is to solve the financial problems of the railway. - 12 - on them have been reduced, seven have been shown to be economic, and three have been shown as uneconomic but to be studied further because of the latest economic developments in the study areas; the remaining 12 are scheduled for future studies, and the results of some of the studies are expected to be known in early 1979. It should be stated that, although the program of these studies has been delayed, satisfactory progress has been made, especially in light of the heavy work- load entrusted to N de M's Planning Department through the Plan of Action. In addition to the studies of costs of freight by commodity, mail, passenger and express services which were already too much to handle within the time period allocated, N de M carried out studies on low density lines. For future projects, the Bank should carefuly assess the possibility of meeting the target dates and ensure that the workload on the borrower is not excessive. (e) N de M was required to achieve, by no later than 1981, a financial position permitting it to pay all operating expenses and debt service charges and to make a contri- bution of at least 40% to its investment thereafter; to this end, the financial forecasts and associated actions of N de M were to be reviewed and adjusted periodically with the Bank. N de M will probably not meet the 40% target mainly because of the failure of the Government to raise tariffs and also because this is rather an unrealistic goal. In the third loan (1232-ME), these targets have been revised, suggesting that there is a need for the Bank to determine more realistic targets and to take stronger action with the Government on tariff agreements. (vi) Government Financial Support to N de M - The Government has complied with Section 2.03 of the Guarantee Agreement since it has always provided necessary funds to N de M to meet the expenditures required for carrying out the project. (vii) Passenger Traffic Study in Mexico - Section 3.04 of the Guarantee Agreement required the Government to send to the Bank for its comments the study on passenger traffic which was being carried out by SCT. This was forwarded to the Bank after its completion, and led to the cessation of a number of passenger train services and the formulation of a program for the discontinuance and rationalization of passenger services in the following project (Loan 1232-ME). For those services which remain in operation on social grounds, the Government compensates N de M for the losses. (viii) Taxes - Section 3.06 of the Guarantee Agreement required that the Guarantor turn over to N de M the 12.2% taxes on the gross freight revenues. The Government is regularly turning over taxes to the railway, and N de M is at liberty to use these funds as it requires. - 13 - (ix) Corporate Plan (all railways) - Section 3.08 of the Guarantee Agreement required the preparation of corporate plans by railways other than N de M acceptable to the Bank and aimed at achieving financial viability by 1981. Exact information on this subject has not been available so far, although SCT has promised to prepare and send it. This covenant was probably overambitious. It has been hard enough to achieve financial viability in N de M, which forms the subject of this project. This clause of the Guarantee Agreement calls for programs to achieve financial viability on the other four railways (not covered by the project), which, although a worthy objective, is clearly asking for too much. VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT 6.01 During appraisal, the mission identified two main areas in which institutional development needed to be focused: (i) N de M: Although the upper level of the N de M management was considered capable, organizational changes were necessary not only within N de M itself but also with relation to the other four Mexican railways which worked more or less inde- pendently of each other with little or no coordination with respect to management, operational, maintenance, tariff or other policies. (ii) SCT: The sectoral planning directorate of SCT needed to be strengthened in order to develop its long range planning capacity for investments in the transport sector. Organization of N de M 6.02 With the assistance of consultants Tops-on-Line, the 17 divisions of the railway were reorganized into four regions, each under the charge of a Regional Manager. This led to some decentralization of authority and better coordination among the different parts of the railway. The Planning Office (Oficina de Programacion y Organizacion y Metodos) was developed under a Director of Planning, with the principal objective of preparing investment plans after the requisite analyses and establishing the appropriate systems and norms for such work. Work was initiated in the project on developing the separate cells within the Planning Office for planning, evaluation of projects, costing, organization and methods and statistics and information. 1/ 6.03 In.particular, the creation of the railway cost analysis section in the Planning Office was an important development since it enabled proper use 1/ This work was continued in the third project, and Bank missions have been able to see the progressive development of these offices into effective management aids. - 14 - to be made of the traffic costing system established by consultants, Tops-on- Line, in 1974. The section has helped identify railway losses and has effec- tively indicated cost-oriented tariffs and fares. The Planning Office was largely responsible for the development and evaluation of the investment plan which formed the basis for the Third Railway Project. 6.04 Another important organizational change was the creation of the signaling and telecommunications department (previously this function was handled by the electricity and train lighting department) which accompanied the development of the first sizable telecommunications program of the railway. Likewise, the mechanization of track maintenance resulted in the creation of the section for the control and maintenance of track machinery in the department of track and structures. 6.05 As in operations, it is difficult to segregate in this area the contribution of the Second Railway Project as distinct from that of the Third Railway Project because the two projects overlapped. However, it is signifi- cant that the institutional development initiated in the Second Project was continued with renewed emphasis in the Third Project. A particular example of such development is the unification of the five railway systems of Mexico which has come about in 1978. This has already resulted in common tariff policies for all the railways (para 5.06 iv), and will eventually lead not only to unified train operations, but also to a common service approach, standardized maintenance of railway facilities, and, finally, economies of scale in management, administration and procurement. Strengthening of SCT 6.06 In compliance with the program agreed upon with the Bank, SCT took action (although with some initial delay) to strengthen its planning office by a substantial increase in its staff. French consultants, Intertransport, were employed to advise on the reorganization and strengthening of SCT, and the Bank loan was used for training staff members of SCT assigned to project evaluation and transport planning. 6.07 The Bank loan also financed a road-user charges study which was conducted by consultants WT Aitkins in accordance with terms of reference agreed with the Bank. This study was reviewed by the Bank, and the Mexican Government was informed of the Bank's views on the various issues discussed in the report. The major findings of the report were as follows: - PEMEX underprices all refined products since crude oil inputs are valued at less than half of world market prices. - Automobile users and private gasoline driven trucks paid gasoline taxes in 1975 sufficient to cover the total annual maintenance cost of highways plus most of the annual construction costs. - Diesel-powered trucks and gasoline-powered public service trucks paid virtually nothing for the use of the highway system. - 15 - The matter of underpriced refined products for all users goes beyond the transport sector and is essentially a macroeconomic issue. The policy of the Mexican Government to cross-subsidize long haul intercity trucking with revenues from gasoline users is a long-standing one, based originally on the desire to promote commerce and to integrate the country with low cost transport. The wisdom of continuing this policy is open to question, and the issue has been discussed a number of times with the Government from the point of view of public finance, equity and economic efficiency. A partial move to remedy the situation was made recently when gasoline-powered public service vehicles were also made subject to the large gasoline tax. The Government, however, has decided to continue the policy for diesel-powered trucks with full know- ledge of the arguments against doing so. 1/ VII. ECONOMIC REEVALUATION 7.01 The Planning and Programing unit in N de M prepared a retrospective economic analysis of the investment program utilizing the Bank loan. It differs from the appraisal analysis in that it is more detailed and better documented, and the investments take place over the period 1972-1977 rather than 1972-1973 as initially envisaged. The economic analyses as presented by N de M follow normal Bank practices, and, unless otherwise stated, the following presentation is based on the N de M analysis. Details not presented herein can be obtained from the final report in the LAC files. 7.02 The investments associated with the Bank loan together with the restrospective rates of return for the period 1972-1977 are set out below: Amount % of Rate of Item (million pesos) Total Return Rehabilitation of Way and Bridges 683.8 23 21 Locomotive, Rolling Stock and Workshop Equipment 1,241.6 41 18 Telecommunications 381.7 12 20 Bypasses 17.3 1 16 Sidings 21.7 1 31 Sleepers 79.3 2 25 Way Maintenance Equipment 60.5 2 19 Ballast Cars 15.9 1 20 Axles and Bearings 21.9 1 14 Subtotal 2,522.8 84 20 Other 481.6 16 - 3,004.4 100 - 1/ This matter was reviewed by the sector mission which visited Mexico in 1978 and is being pursued by the Bank with the Mexican Government. - 16 - The N de M analysis indicates an expected overall rate of return (ROR) of 20% whereas the appraisal report estimates an overall ROR of 18%. The N de M analysis also indicates that the best investments were sidings and sleepers, with axles and bearings and bypasses yielding the lowest ROR's. The appraisal report analysis is not presented in the same detail and does not allow com- parison. 7.03 For purposes of exposition, only the first three items on the list above are analyzed in the following paragraphs; they represent 76% of the investment analyzed in the N de M completion report. Details of the analyses of the other elements are available in the Division files. Rehabilitation of Way and Bridges 7.04 The basic measure of benefits for investment in the rehabilitation of way and bridges was the increase in average velocity made possible with the improvements. The most dramatic improvement was on the 124.7 km Jalapa- Veracruz line, where average speeds increased from 11.5 km/hr to 24.0 km/hr because of the investment. The smallest improvement was on the 42.2 km Chicalote-San Luis Potosi line where speeds increased from 24.7 km/hr to 27.4 km/hr. A value of Mex$1,600 (US$71) per train hour was derived for an average 38-car train and crew. For a line that had experienced rehab- ilitation of both way and bridges, the benefits for one year were computed as the differences in travel time with and without the improvements, times the number of trains, times the value of a train-hour. Traffic growth rates for each section, varying between a low of 4.7% and a high of 9.2%, were used to project the entire benefit stream. 7.05 For sections on which only bridges were improved, the time savings were computed as a function of the number of improved bridges. The basiK assumption was that the go slow orders for the inadequate bridges required a train to reduce its speed from an average of 25 km/hr to 10 km/hr and that the time lost in this operation was 84 seconds, or .023 hours per bridge. The benefits for one year were computed by multiplying the .023 hour times the number of improved bridges, times the number of trains per year times the Mex$1,600 per train hour. The benefit stream was then projected using the expected growth in train traffic over the useful life of the improvement. The rate of return on the improvements taken as a whole was estimated to be 21%. Locomotives, Rolling Stock and Workshop Equipment 7.06 All three of these items are analyzed as a group since, taken as a whole, they represent an integrated investment in freight carrying capa- city. The approach to benefit analysis is to calculate the potential traffic that could not be carried without the investment and to assume that the traffic not carried by rail would go by truck. The difference between the average variable rail cost (US$.010/ton-km) and average line haul trucking costs (US$.016/ton-km) is assumed to be the unit saving per ton-km of traffic not diverted to road. Trucking costs are based on a 20-ton truck running on paved roads at 60 km/hour with a 50% load factor. The equipment parchased - 17 - represents capacity for 2.6 billion ton-km per year yielding annual savings of (.016 - .010) X 2.6 = US$15.6 million per year for a US$55.1 million invest- ment. For a 20-year useful life, this yields an 18% internal rate of return. 7.07 While the above is a common approach to the problem, it is a little crude in the sense that differences in service characteristics and terminal costs are not considered, nor is the impact of diversion on road maintenance costs. However, the assumption that trucking costs are only 63% higher than rail costs is considerably below the usual assumption, in which trucking unit costs are at least double rail unit costs. In this sense, the benefit analysis is conservative and the investment almost certainly jusitifed. Telecommunications 7.08 The analysis for this item is based on an updated 1974 study. The benefits considered are: - 20% improvement in wagon utilization; - a one-km-per-hour speed increase in train without additional tractive effort; - a one-percent improvement in locomotive utilization; - reduction in damage to equipment; and - reduction in train crew overtime. Also, additional operating costs for the telecommunications equipment are considered. 7.09 The important benefit element is improved wagon utilization, account- ing for 78% of total benefits, followed by increased train speeds, accounting for 12% of benefits. The annual benefits are considered to be constant and to accrue for 20 years, yielding an internal rate of return of 20%, the same as that computed in the appraisal report. VIII. THE ROLE OF THE BANK Project Justification and Objectives 8.01 The Bank's interpretation of the borrower's priorities and problems was basically well-founded, and the strategy of the project, comprising a series of investments related to a target-oriented plan of action, appears to be the best approach for tackling the problems of complex undertaking such as railways. - 18 - Project Content and Scheduling 8.02 On balance, the results suggest that the size and complexity of the project and loan conditions were appropriate and (with a few exceptions) not overly ambitious. The time schedule for implementation was clearly too tight, and the fact that a longer span of implementation with some cost overruns still yielded a rate of return better than the appraisal estimates indicates that the time-schedule for implementation could have been more relaxed. Project Implementation and Operating Outcomes 8.03 Adjustments to the Investment Program were made as the project progressed, but this was done in close collaboration between the bank and the borrower (para 3.03). Some changes, such as the introduction of the VHF/UHF telecommunications system, introduced new technology and a degree of modern- ization, perhaps for the first time, in the railway system of a developing country. Operating and technical performance of the railway showed substantial improvement and paved the way for further innovations in the following project, such as the introduction of a computerized operational control system, which, again, is a first in a developing country's railway. Implications of Project Outcomes 8.04 The frequency and quality of Bank supervisions were generally adequate. The project established a good working relationship between the Bank and N de M, which has been strengthened by the continuance of the management team, headed by Mr. Luis Gomez Zepeda, during the implementation of the third project. 8.05 In four respects, the appraisal report for this project was not realistic: (a) the time required to implement the project and the period of disbursements were initially underestimated. These deficiencies were, however,corrected by adjustments to the implementation schedule and reallocations as the project progressed. (b) Experience with this project and the following project indi- cates that the appraisal target for N de M to achieve financial viability 1/ by 1981 was over-optimistic in that it did not take into account the economic troubles which were to beset the world in general and Mexico in particular after 1974. However, a greater resolve on the part of the government could have made and still can make, this objective, at least in good part, attainable. (c) Section 3.08 of the Guarantee Agreement requiring railways other than N de M to prepare and introduce, by 1973, corporate plans to achieve financial viability by 1981 was overambitious. 1/ Which was defined as a financial position permitting N de M to pay all operating expenses, service all its debts and make a contribution equal to at least 40% to its investments. - 19 - (d) The staff problem was not adequately addressed; steps are being taken to remedy this deficiency in the following project. IX. CONCLUSIONS Main Conclusions 9.01 Although the implementation of the project was delayed somewhat, the main objectives, e.g., rehabilitation of the railways' facilities and improve- ment of its operations, organization and management, were largely achieved. 9.02 The overall economic rate of return of 20% was better than the appraisal estimate of 18%. 9.03 Although the operational performance of the railway improved, its financial performance was below the appraisal projections, mainly because of inadequate tariff increases. 9.04 The institutional development part of the project, both in SCT and the railway, was well implemented, has been followed by similar programs in the next project and marks the establishment of fairly effective planning organizations both in SCT and N de M. 9.05 Project implementation was delayed, mainly because of changes which were introduced as the project progressed. These changes were mostly improve- ments to the project and proved beneficial to the railway. 9.06 The Government was prompt and punctual in providing necessary funds for the railway. Recommendations 9.07 Greater care should be taken in formulating the covenants regarding the increases of tariffs and fares, and compliance with them should then be pursued at the highest levels of Government. 9.08 Too many covenants in railway loan and guarantee agreements should be avoided; a covenant, Section 3.08 of the Guarantee Agreement (concerning financial viability of other railways), was excessively ambitious. It is desirable to have fewer covenants whose implementation should be forcefully pursued. PROJECT COMPLETION REPORT MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Actual and Expected Physical Completion Percentage of Original. Works Units Completed Date of Completion Completed by Main Works Units Actual Expected Actual Expected Expected Date Bridges No. of works 576 - 1977 1976 77% Track rehabilitation km 723 690 1975 1976 105% Sidings km 38.9 35.0 1974 1976 111% Extension of crossing loops km 46.6 40.0 1976 1976 117% Sleepers Thousands sleepers 927.5 4,000 1977 1976 23% Track machinery - - 1975 1976 100% (2) Ballast wagons No. of units 40 40 1975 1976 100% Housing No. of section houses 390 -. 1974 1976 112% (2) Ballast - - 1975 1976 89% (2) Miscellaneous - - 1976 1976 136% (2) O Workshops - - 1974 1976 106% (2) Yards - - 1977 1976 84% (2) Stations - - 1973 1976 254% (2) Miscellaneous - - 1973 1976 218% (2) Locomotives H.P. 274,800 270,000 1973 1976 102% Freight cars No. of units 3,450 2,800 1974 1976 123% Axles & roller bearings Equipped cars 1,500 1,000 1974 1976 150% Passenger coaches No. of units - 64 - 1976 0% Postal vans No. of units - 64 - 1976 0% Workshop machinery - - 1975 1976 127% (2) Telecommunications - - 1980(3) 1976 16% (2) Consulting services - - 1976 1976 138% (2) V The percentage is calculated in relation to the date of completion in the Loan Agreement 2/ Based on the expenditure incurred. The VHF/UIF project was completely changed as described in para 3.03 (d) - 21 - PROJECT COMPLETION REPORT TABLE 2 MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Actual and Appraisal Estimates of Project Costs (Mex$ millions) Appraisal Estimate of Cost Actual Cost Local Foreign Total Local Foreign Total Ways & Structures Bridges 150.0 - 150.0 158.0 - 158.0 Rails & Fastenings 39.0 197.0 236.0 278.8 247.0 525.8 Extension of Crossing Loops 24.0 - 24.0 21.7 - 21.7 Timber Sleepers 114.0 106.0 220.0 - 79.3 79.3 Track Equipment 8.0 32.0 40.0 - 76.4 76.4 Staff Housing 80.0 - 80.0 89.3 - 89.3 Ballast 43.0 - 43.0 38.2 - 38.2 Sidings 26.0 - 26.0 20.9 - 20.9 Miscellaneous 71.0 - 71.0 96.4 - 96.4 Subtotal 555.0 335.0 890.0 703.3 402.7 1,106.0 Terminals Maintenance Shops 57.0 - 57.0 60.2 - 60.2 Yards 100.0 - 100.0 101.7 - 101.7 Stations & Sheds 14.0 - 14.0 35.5 - 35.5 Miscellaneous 18.0 - 18.0 39.2 - 39.2 Subtotal 189.0 - 189.0 236.6 - 236.6 Motive Power & Rolling Stock Diesel Locomotives & - 420.0 420.0 - 355.3 355.3 Spare Parts Freightcars 258.0 367.0 625.0 459.4 361.9 821.3 Roller Bearings - 21.0 21.0 - 21.9 21.9 Passenger Cars - 43.6 43.0 - - - Workshop Equipment 20.0 31.0 51.0 18.8 46.2 65.0 Subtotal 278.0 882.0 1,160.0 478.2 788.3 1,263.5 1/ Telecommunications- 101.0 88.0 189.0 150.6 231.1 381.7 Consulting Services 3,.;0 9.0 12.0 - 16.6 16.6 Contingencies - 96.0 96.0 - - - GRAND TOTAL 1,126.0 1,410.0 2,536.0 1,568.7 1,435.7 3,004.4 1/ This is the portion of the Telecommunications Project in the Second Project and Loan (825-ME), the works continued into the Third Project and Loan (1232-ME). - 22 - PROJECT COMPLETION REPORT TABLE 2A MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Actual and Appraisal Estimates of Project Costs (US$ millions) Appraisal Estimate of Cost Actual Cost Local Foreign Total Local Foreign Total Ways & Structures Bridges 12.0 - 12.0 10.6 - 10.6 Rails & Fastenings 3.1 15.7 18.8 22.3 19.8 42.1 Extension of Crossing Loops 1.9 - 1.9 1.6 - 1.6 Timber Sleepers 9.1 8.5 17.6 - 6.3 6.3 Track Equipment 0.7 2.6 3.3 - 6.2 6.2 Staff Housing 6.4 - 6.4 7.1 - 7.1 Ballast 3.4 - 3.4 3.1 - 3.1 Sidings 2.1 - 2.1 1.7 - 1.7 Miscellaneous 5.7 - 5.7 7.5 - 7.5 Subtotal 44.4 26.8 71.2 53.9 32.3 86.2 Terminals Maintenance Shops 4.6 - 4.6 4.9 - 4.9 Yards 8.0 - 8.0 7.1 - 7.1 Stations & Sheds 1.1 - 1.1 2.8 - 2.2 Miscellaneous 1.4 - 1.4 3.1 - 3.1 Subtotal 15.1 - 15.1 17.9 - 17.9 Motive Power & Rolling Stock Diesel Locomotives & - Spare Parts 33.6 33.6 - 28.4 28.4 Freightcars 20.6 29.4 50.0 36.7 29.0 65.7 Roller Bearings - 1.7 1.7 - 1.7 1.7 Passenger Cars - 3.4 3.4 - - - Workshop Equipment 1.6 2.5 4.1 1.5 3.7 5.2 Subtotal 22.2 70.6 92.8 38.2 62.8 101.0 Telecommunicationsl/ 8.1 7.0 15.1 7.6 13.4 21.0 Consulting Services 0.2 0.7 0.9 1.2 1.2 Contingencies 7.7 7.7 - - - GRAND TOTAL 90.0 112.8 202.8 117.6 109.7 227.3 1/ This is the portion of the Telecommunications Project in the Second Project and Loan (825-ME), the works continued into the Third Project and Loan (1232-ME). - 23 - TABLE 3 PROJECT COMPLETION REPORT MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Disbursement Schedule (In millions of dollars) DISBURSEMENTS quarterly Cumulative I. Fiscal Year 1972-1973 Actual Original Actual Original To September 30, 1972 - 4.0 - 4.0 To December 31, 1972 0.2 12.0 0.2 16.0 To March 31, 1973 0.1 8.0 0.3 24.0 To June 30, 1973 1.9 8.0 2.2 32.0 II. Fiscal Year 1973-1974 To September 30, 1973 5.6 9.0 7.8 41.0 To December 31, 1973 5.6 8.0 13.4 49.0 To March 31, 1974 9.2 6.0 22.6 55.0 To June 30, 1974 12.3 7.0 34.9 62.0 III. Fiscal Year 1974-1975 To September 30, 1974 5.4 5.0 40.3 67.0 To December 31, 1974 2.6 6.0 42.9 73.0 To March 31, 1975 1.7 1.0 44.6 74.0 To June 30, 1975 3.3 1.0 47.9 75.0 IV. Fiscal Year 1975-1976 To September 30, 1975 3.7 - 51.6 - To December 31, 1975 4.7 - 56.3 - To March 31, 1976 8.5 - 64.8 - To June 30, 1976 1.4 - 66.2 - V. Fiscal Year 1976-1977 To September 30, 1976 1.3 - 67.5 - To December 31, 1976 0.5 - 68.0 - To March 31, 1977 3.8 - 71.8 - To June 30, 1977 0.3 - 72.1 - VI. Fiscal Year 1977-1978 To September 30, 1977 2.9 75.0 September 1978 PROJECT COMPLETION REPORT MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Actual and Forecast Traffic FREIG H T PAS SEN GER Actual Performance Appraisal Estimate Actual Performance Appraisal Estimate Net Ton-Km Average Haul Net Ton-Km Average Haul Pass-Km Average Haul Pass-Km Average Haul Year (billion) (km) (billion) (km) (billion) (km) (billion) (km) 1966 14.8 451 NA NA 3.1 92 1968 16.5 452 NA NA 3.5 99 1970 18.1 472 18.1 472 3.4 104 3.4 1972 19.4 464 19.6 461 3.3 113 3.1 NA 1974 25.5 493 21.3 473 3.1 127 2.8 NA 19761/ 26.8 523 23.6 498 2.5 131 2.5 NA 19781z 29.3 512 3.W 149 1/ -/ Estimate based on 9 month data. Source: Appraisal estimate from appraisal report. Actual performance from N de M. October 1978 PROJECT COMPLETION REPORT MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Selected Operating Statistics (1972-1976) 1972 1973 1974 1975 1976 I T E M S Actual Projection Actual Projection Actual Projection Actual Projection Actual Projection System Length (km) 14,090.4 - 14,114.6 - 14,151.3 - 14,173.9 - 14,223.9 - Staff 60,230. 59,000. 60,799. 59,000. 61,323. 59,000. 63,262. 59,000. 63,262. 59,000. Staff (Operations) 12,580. - 13,300. - 12,743. - 13,633. - 14,552. - Staff (Other) 47,650. - 47,499. - 48,580. - 49,629. - 48,710. - Traffic Number of passengers (millions) 29.2 34.5 24.0 35.2 20.0 35.9 19.5 36.6 19.1 37.3 Passenger km (millions) 3,286.2 3,574. 2,793.1 3,645.0 3,114.5 3,718. 2,612.7 3,792. 2,507.6 3,868. Average assistance passengers (km) 112.7 103.6 116.9 103.5 155.6 103.6 133.9 103.6 131.2 103.7 Net tons (millions) 42.0 42.5 44.3 43.9 52.0 45.0 52.3 46.2 51.3 47.3 1 Net ton km (millions) 19,411.8 19,600. 21,364.2 20,200. 25,457.4 21,300. 27,046.5 22,400. 26,838.8 23,600. Average haul (km) 464.0 461.2 482.0 460.1 492.4 473.3 518.0 484.8 523.0 498.9 6 Gross ton km (millions) 42,837.1 - 44,399.0 - 49,221.0 - 50,565.0 - 51,984.0 - Car km loaded (millions) 500.0 - 520.6 - 580.9 - 573.2 - 570.6 - Car km empty (millions) 304.5 - 279.7 - 326.8 - 372.0 - 375.0 - Traffic Density Passenger km per km of track (thousands) 233. - 198. - 220. - 184. - 176. - Net ton km per km of track (thousands) 1,378. - 1,514. - 1,799. - 1,908.2 - 1,887. - Operations Passenter train km (millions) 16.0 18.3 14.2 18.3 14.0 18.3 14.0 18.3 13.0 18.3 Freight train km (millions) 20.2 24.0 20.4 25.2 21.6 26.6 22.5 28.0 24.3 29.5 Total train km (million) 40.1 42.3 38.6 43.5 39.6 44.9 40.4 46.3 40.9 47.8 Locomotive km diesels (millions) 70.0 - 69.2 - 77.4 - 82.1 - 87.4 - Efficiency of Operations Gross ton km/train km 2,008. - 2,051. - 2,158. - 2,168. - 2,072. - Net ton km/train kin 1,052. 817. 1,115. 802. 1,168. 801. 1,147. 800. 1,078. 800. bd Net ton km per loaded car km 40.98 - 43.45 - 45.94 - 49.12 - 48.54 - t74 wagon turn round (days) 16.4 - 19.2 - 17.5 - 16.0 - 14.8 - Average speed (km/h) 21.4 - 19.3 - 20.4 - 22.5 - 26.4 - Traffic units per employee (thousands) 376.9 386. 397.3 404. 466.0 424. 469.0 444. 464.0 465. Availability Diesel locomotive (%) (83) 85.0 (84) 85.0 83.4 85.0 82.6 85.0 86.1 85.0 Freight cars (%) 93.6 91.0 94.6 92.0 95.4 93.0 96.0 94.0 97.5 95.0 PROJECT COMPLETION PTEPORT MEXICO - LOAN 825-IE SECOND RAILWAY PROJECT Execution of Plan of Action 1972-1976 1972 1973 1974 1975 1976 ITEM Target Actual Target Actual Target Actual Target Actual Target Actual Number of staff- 59,000 59,633 59,000 59,893 59,000 60,125 59,000 61,250 59,000 61,907 Operating ratio 1.43 1.144 1.43 1.52 1.27 1.56 1.30 1.26 1.17 1. (4 Net ton-km/Ireight train hour 20,000 22,550 20,000 22,147 20,000 23,856 20,000 25,807 20,000 28,717 Locomotive kin per year per main- 90,000 90,170 92,500 86,421 95,000 94,634 97,500 103,267 100,000 104,869 line locomotive in use Locomotives under repair % 157 15.9% 157. 16.1% 15% 16.6% 157, 17.47, 15% 13.97 Ton-km per serviceable car day 1,450 1,473 1,560 1,298 1,650 1,383 1,700 1,577 1,750 2,122 Freight cars under repair 7, 91 6.4% 8% 5.4% 77 4.6% 6% 47. 57/ 4.5 1/ The number of staff indicated excludes the temporary staff. 0' F ~OJCT lIMo.TH- R8978T 8800 -J156 9oen ? MWAYR molut rET ln- Accout 1967 1968 1969 1970 1971 1972 1973 187 1975 1974 i972 ig? Foecast A 1t.al torneaM Actual 7oe e7Ó Act.1 FtrnanmtvAtuel Foreatv Actu Attat 72.,al oPERATINC REN98-A (4) Cha.rgs. to the peblie Passengers 143 '110 154 :134 151 163 133 179 132 182 515 597 178 187 l8 2M7 207 E4 92 102 98 97 102 102 104 102 106 110 108 154 110 148 195 166 M* 1 5 1 1 • 2 33 55 47 57 48 59 62 60 62 62 - Freigt ..ca oad and 12L'traffic6 3823 332 ,2 Locl,htlt ,, 1,51 1,6 1,71 1,63 2.1 1,86 22 2,012 2,642 2.52 2,746 3.714 32 382 53 4,2 D r 24 28 78 28 32 30 30 31 . 44 32 93 33 18 33 201. 184 18 4iteaeous, heldag ta4a 1 17 22 29 20 27 20 28 20 29 26 30 60 30 88 2*4 142 Tex refund by Coenet - .~.6 ~.lp« --. - 262 - 294 - 35p . 524 - 540 769 612 S.b-Ttal1 1.838 1,902 2.008 *.110 2,218 2,510 2,514 2.643 2,760 3.094 3,3235 3.202 4.908 3.696 5,077 5.032 5,521 (b) Campe.nstion by Gevernment f, unöRfitabl. eraenger, proolt -n th-1 - - - - - 70 - 120 - 160 - 171 >40 )583 )506 Fr1ight - - 125 250 - 40 - 70 - 5 25 1> Total eperat48reven 1.8r t i. 902 2.005 5.110 2210 1 .635 2.514 2.963 .2760 3.416 3.325 3.632 6e4 4.119 5M527 7.615 66027 Staff co.t4: ge., es1ar.e. , ovdet...,t ione lie, t,25 1,178 1.296 1,538 532 1.650 1,610 1,773 1,660 1.876 3243 2.038 3.239 2,139 3.689 4,849 3.546 Bonuses and other concesson6 119 123 136 151 .183 204 221 221 261 230 331 250 123 256 151 186 118 eno 1.. 206 263 301 330 355 380 364 410 437 440 552 470 433 500 7m 572 Sek pay 24 l5 33 37 39 43 44 63 31 47 80 50 77 51 507 550 72 M.Uica .n hospitat servies 144 131 130 174 110 115 162 200 179 217 226 233 140 110 146 5051152 To-I Ouaff cos1 a 1,618 1.720 1.904 2,080 2,59 2,462 2,421 2.649 2,768 2.804 3,434 3.041 4,214 3,196 5.001 0.151 4,430 . ruel, I ater & tubrigmte 126 103 127 131 130 . 164 171 168 212 173 321 176 234 180 273 402 307 14, aleepes, fictins and ballaSt 61 71 56 52 104 64) 68) 72> . 76> . 80 ) > Other -aterkal: 270 321 352 37 389 #10) 716 425) 792 435) 1,017 440 , 450) l,49r) 2,48. 5,51' "-nera1 expenses. 1-9 156 188 162 516 175) 167) 190) . 200) 210) )) Ret of Iresght 1a 6 ochet qeentt (nt) '47 56 58 13 96 60 82 60 170 60 145 60 139 60 12 (78) (20 Deprectcon 222 230 230 227 224 252 231 264 243 276 269 288 30} 300 374 512 291 ub-Ttal 2,333 2,639 1,913 3.140 3,31t 3,5~7 3.631 3.821 4,155 4,010 5,146 4.281 6,203 4,676 7.137 9,473 6.,39 1FS5: Eatimaced tavlng. fr=m åbo~--t' of passengr services -. - .- 40 80 . 120 - 160 - R.ibur.em. nt by governmet of 441 security c0 1, n x . of th..o p.d by prevt. Indu»try - - • - - - - 99 - 126 - 12 - 159 - - total of oerlag sxpendIsture 2.533 2.659 2.915 3.140 3.318 3.587 3,63 3.682 41853 -3O04 5.186 4.036 6.205 4.57 7.1>7 9.475 ,569 1L ... on extcan Paso devel6ation 51 834 -5~ - Net operatng deficit 695 757 907 1.030 1,100 952 1.117 719 1,425 330 1,861 404 1.297 38 2.813 2,274 522 Intercetrcharres 151 157 138 145 155 115' 182 209 253 239 35> 246 596 250 1,091 1,595 970 Ntt deficit 846 914 1.045 1,175 1,255 1,138 1,299 926 1,678 569 2,216 650 1,893 288 3.904 3,869 1,492 Woking r.tio (x11. Cov't compo estion) 126 126 134 138 139 135 t43 148 120 157 133 113 Gross oper.1t. 0ati (Ii. co't ompensation 138 140 145 149 150 137 144 125 152 110 156 112 124 101 1531 130 109 6-1 operats ratioS . Govt c-mpet...t«) 138 140 143 149 150 143 144 143 152 127 136 130 126 117 164 141 519 . Tt.. interest1 earned - - - - - - - - D.bt service covere. - - - - - - - - - - - - -. Return on. natfixd asse14- -- - - - - . . . - . 1/ - nl forec-t, tax. e Icluded In operating rove... ,/Re. figure. includ. ta<% ~*5und which wee not dhobn In the cspervigi report ./Only combined tot.19 åvail fr 1972 to 1978. D/Devluation lo.... f m5 1 1,&3 1n 1976 (Preen - Tt* M:.6 391 ln 1977 Mex$ 22.50-U~9 1) .2/pe,s.a toeo.t l, 577& 578 ot o.5.t., - ho . ,Trd 40 p tt.8 ratt. tor 1977 .1,9 dffer»,t to the" ih.n 44 upeeel.1. raporta. S d c e lo .o on r d ~ r a th ab ~o r oerrtt. P 57 1. eoa... &r 5e1n 511l be clcltlo4ed ln D-eer 197. Source: N d. M Octobe. 1978 PROJECT COMPLETION REPORT MEXICO - LOAN 825-mE SECOND RAILWAY PROJECT Summary Balance Sheets, 1967 - 1977 (N de M) 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 (Pesos million) Forecast Actual Forecast Actual Forecast Actual Forecast Actual Forecast Actual Actual FIXED ASSETS: Gross book value 14,403 15,526 16,004 16,392 16,780 17,990 17,390 19,212 18,399 20,362 20,037 21,112 22,677 21,862 28,406 32,117 Less: Accumulated depreciation 2,015 2,143 2,293 2,478 2,641 1,959 2,858 3,223 3,133 3,499 3,195 3,787 3,358 4,087 3,602 4,104 Total net fixed assets 12,388 13,383 13,711 13,914 14,139 15,031 14,532 15,989 15,266 16,863 16,842 17,325 19,319 17,775 24,794 28,013 DEFERRED ASSETS: 109 82 51 63 82 60 144 60 199 60 173 60 68 60 211 170 INVESTMENT AND DEPOSITS: 14 17 20 23 27 20 59 20 208 20 151 20 233 20 91 757 CURRENT ASSETS: Cash in hand and at banks 15 20 29 22 63 65 139 80 137 110 188 135 272 160 273 606 Cash in transit 40 46 46 73 47 55 27 60 42 60 36 65 126 70 129 164 Receivables, net of bad and doubtful debts provisions 143 200 216 148 170 170 229 180 189 200 248 210 489 220 461 848 Inventories, net of provision for obsolescence and deterioration 859 257 278 550 530 552 495 572 504 592 677 612 1,444 632 1,576 1.787 Total current assets 1,057 523 569 793 810 842 890 892 872 962 1,149 1,022 2,331 1,082 2,439 3,405 TOTAL ASSETS: 13,568 14,005 14,351 14,793 15,058 15,953 15,625 16,961 16,545 17,905 18,315 18,427 21,951 18,937 27,535 32,345 CURRENT LIABILITIES: Creditors and accrued expenses 242 320 270 435 391 400 589 400 641 420 645 430 913 440. 1,053 1,298 DEFERRED LIABILITIES: 21 39 38 48 44 40 2 40 1 40 1 40 - 40 - - PENSIONS PROVISIONS: 50 37 25 14 4 - - - - - - . . . . DEBT: Short and medium term loans and suppliers' credits 2,154 2,160 2,118 2,156 1,421 2,205 1,285 1,890 1,679 1,642 1,083 1,349 1,609 1,116 2,957 2,257 Long term loans - - - - 814 216 1,072 775 1,430 1,387 3,690 1,834 6,381 2,292 11,506 15,154 Total debt 2,154 2,160 2,118 2,15b 2,235 2,421 2,357 2,665 3,109 3,029 4,773 3,183 7,990 3,408 14,463 17,411 2/ GOVERNMENT EQUITY: 3/ Capital subscriptions and subventions 17,352 18,742 20,241 21,674 13,895 25,277 13,030 26,969 13,171 28,098 13,325 29,106 13,556 29,669 13,908 14,741 Less: Accumulated deficits 6,251 7,293 8,341 9,534 1,511 12,185 353 13,113 377 13,682 429 14,332 508 14.620 1.889 1,105 Total net equity 11,101 11,449 11,900 12,140 12,384 13,092 12,617 13,856 12,794 14,416 12,896 14,774 13,048 15,049 12,019 13,636 TOTAL LIABILITIES: 13,568 14,005 14,351 14,793 15,058 15,953 15,625 16,961 16,545 17,905 18,315 18,427 21,951 18,937 27,535 32.345 RATIOS: H Current 4.4/1 1.6/1 2.1/1 1.8/1 2.1/1 2.1/1 1.5/1 2.2/1 1.4/1 2.3/1 1.8/1 2.4/1 2.6/1 2.5/1 2.3/1 2.6/1 Liquid 0.8/1 0.8/1 1.1/1 0.6/1 0.7/1 0.7/1 0.7/1 0.6/1 0.6/1 0.9/1 0.7/1 1.0/1 1.0/1 1.0/1 0.8/1 1.3/1 Debt / Equity 16/84 16/84 15/85 15/85 15/85 16/84 16/84 16/84 20/80 17/83 27/73 18/82 38/62 18/82 55/45 56/44 1/ These figures are different from those shown in previous supervision reports due to N de M's corrections. 2/ The figures are different from those shown in previous supervision reports because of adjustment of loss on devaluation made later. 3/ After adjusting deficits accumulated to 1971. Source - N de M October 1978 - 29 - TABLE 9 PROJECT COMPLETION REPORT MEXICO - LOAN 825-ME SECOND RAILWAY PROJECT Actual and Appraisal Expectation of Financing during Project Period Local Currency (million) Foreign Currency (million) APPRAISAL APPRAISAL ACTUAL EXPECTATION ACTUAL EXPECTATION Mexican Mexican SOURCE OF FUNDS Pesos % Pesos % US$ % US$ % Self-financing by Railway Entity 6.2 1 - - Government 101.8 6 600 53 - - - - IBRD 75.0 68 75.0 66 Local 1,460.7 93 526 47 - - 1.2 1 Foreign - - - - 34.7 32 36.6 33 Total 1,568.7 100 1,126.0 100 109.7 100 112.8 100 Source: N de M October 1978 - 30 - ATTACHMENT II MEXICO SECOND RAILWAY PROJECT BORROWER'S COMPLETION REPORT I. INTRODUCTION The Government of Mexicoand Ferrocarriles Nacionales de Mexico (Mexican National Railways) requested the World Bank to help finance its 1972-1973 investment program to rehabilitate, modernize, and increase the capacity of N and M's facilities and equipment, at an estimated cost of Mex$2.536 billion (US$202.8 million) of which the Bank lent US$75 million through loan 825-ME, which was formalized in June 1972. Although the investment program was not the sole factor, as other operational and administrative measures were taken, it undoubtedly played a key role in the development of the railway sector and, consequently, in the growth of the economy. There was a record expansion of freight after the project began, from 19,412 million ton-km in 1972 to 28,735 million in 1977, an average in- crease of 8.2%, while GDP in constant prices rose only 4.5% per year over the same period. According to Bank requirements, after completion of the project, i.e. the execution of its physical components and total disbursement of the loan pro- ceeds N de M was to prepare a project completion report including data on project preparation and appraisal, execution and costs, traffic and operations, financial statement of the borrower's institutional development, economic evaluation of capital outlays, comments on the impact of Bank participation in the project, and conclusions. II. PROJECT PREPARATION AND APPRAISAL The Bank requested information on the origins of the project, and the role of the Bank and the borrower in project preparation and appraisal, as well as an indication of whether the project was timely and significant changes and objections made before the loan was approved. At this time it is not easy, nor in our opinion necessary, to discuss the aspects of preparation of the 1972-1973 project, basically because in many cases the information is not available or in usable form, and because most of the officials who took part in the negotiations are no longer with the company. Nevertheless, with hindsight, we can affirm that the approved project met N de M's most urgent needs and that the Bank's recommendations and conditions resulting from the appraisal focused on significant issues for the development of the sector. III. PROJECT EXECUTION AND COST The original 1972-1973 project called for a total investment of Mex$2.536 billion, of which Mex$1.126 billion was in local currency and Mex$1.401 billion (56%' in foreign exchange. - 31 - The project actually cost Mex$3,004,400,000 of which Mex$1,568,700,00 was in local currency and the remaining Mex$1.435 billion (48%) in foreign ex- change. The criterion for defining the duration of each project component was the completion or reaching of the programmed physical targets, or when the total capital expenditure called for in the appraisal was made, in cases where the physical targets were not sufficiently specified in the project description. As the figures show, the total cost of the project was 18% greater than the appraisal projection, owing primarily to inflation and to the fact the project took longer than expected, since, as discussed below, in some components completion was not reached until 1977. In terms of disbursements, by 1976, the target date for completion of the physical components, Mex$2.74 billion, i.e. 91% of the capital outlay, had been expended. In US dollars the results were slightly different because of the change in exchange rates. Although the appraisal cost was US$202.8 million, the project cost US$ 227.3 million. Bridges A total of Mex$150 million was earmarked in capital expenditure for bridges. That figure was reached in 1977. From 1972 to 1973 Mex$158 million was spent to increase capacity and replace temporary structures with permanent ones in 576 cases. Track replacement The original project included a capital outlay of Mex$236 million for the replacement of approximately 690 km of rail. This was well surpassed in 1975, by which time the renewal of 723 km had been completed at a cost of Mex$525.8 million. The works involved and costs are itemized in the annex, which shows that the project's physical targets were exceeded by 5%. Realignment An investment of Mex$26 million had been planned to modify slopes and curves on approximately 35 km of track. A total of Mex$20.9 million was expended under this heading from 1972 to 1974 for work on the Patti-Yurecuaro Agua Nueva- Encantada and Iturbe-La Lux Sectoris. A total of 38.9 km were built. Sidings An investment of Mex$24 million was planned for sidings in order to add 40 km on 48 sidings. Between 1972 and 1976 work was done on 36 sidings with a length of 46.6 km at an actual cost of Mex$21.7 million, i.e. 90% of the estimate. Physical progress, measured in terms of length, was exceeded by 17%. - 32 - Wooden sleepers In order to cover deferred maintenance, the project included the purchase and installation of 4 million sleepers at a cost of Mex$220 million. Only 927,500 units were actually supplied, of which 721,500 were received in 1975, 162,500 in 1976 and 43,500 in 1977. The delay was due mainly to the nonperformance of the Fondo Nacional de Fomento Ejidal (National Fund for Ejido Development), and of Honduras suppliers who could not meet their commitments because of the cyclone that hit that country among other factors; as a result orders had to be cancelled. On-track machinery and equipment , The project called for capital expenditure of Mex$40 million for heavy track machinery, including 40 ballast hopper cars. From 1972 to 1975 Mex$60.5 million was expended for machinery and 125 ballast hoppers were purchased in 1975 for Mex$49.8 million. We, therefore, consider that the target under this heading was largely exceeded, at a cost of Mex$15.9 million, which is equivalent to the value of 40 units of this type. Section houses and hospitals A total of Mex$80 million was allocated for the construction of section houses for track workers and for hospitals. Although there were no specific physical targets, that amount had been expended by 1974; Mex$89.3 million had been spent for the construction of approximately 390 section houses and rehabili- tation work on hospitals in Colonia, Monterrey, Durango, Veracruz, San Luis Potosi, Aguascalientes and Jalapa. A day-care center was built in Buena Vista and a comprehensive clinic in the Valle de Mexico, and the cornerstone was laid for the new hospital in Cd. Frontera. Ballast The purchase and laying of ballast at a cost of Mex$43 million had been planned in addition to normal maintenance. Between 1972 and 1975 material worth Mex$38.2 million was installed, representing 89% of the target figure. Workshops Mex$57 million was allocated for works to improve the system's workshops be- tween 1972 and 1973. Between project start-up and 1974 a total of Mex$60.2 billion was spent, exceeding the target. The main works involved were replacement of roofs and paving and enlargement of the diesel shop and the coach and car shop at Dofia Cecilia; rehabilitation of the powerhouse and various works in the electrical shop at San Luis Potosi; various work on the powerhouse and supply area at Irapuato; construction of the spare parts warehouse at Matias Romero; construction of the tank and pen cleaning bay, and roller belts in the axles and wheels shop at Aguascalientes; construction of warehouses and start of axles and wheels shop, - 33 - spot system and medium and light car repairs at Valle de M6xico; construction and electromechanical works in the diesel and coach and car shops at Puebla; replace- ment of roofs and various works in the coach and car shop and the powerhouse at Jalapa; construction of the diesel, coach and car shop and powerhouse at Cd. Frontera; and completion of the electric railcar shop and construction of the coach and car shop at Chihuahua. Yards In the category of yards, the 1972-1973 program called for an expenditure of Mex$100 million, which was not reached until 1977. The principal works were enlargement of the laying of track and control tower at Veracruz; expansion of yard capacity, control tower and shed for car inspectors at Guadalajara; expansion at Oriente; lighting, paving, walls and drainage works at Valle de Mexico; earthworks, drainage works and laying of track in the new yard at Tierra Blanca; and earthworks, drainage works and installations to expand the yard in Cd. Frontera. Stations An expenditure of Mex$14 million was planned for improvement and construc- tion of stations. This figure was well exceeded by the project; from 1972 to 1973 alone N de M spent a total of Mex$35.5 million for these works. Locomotives In order to expand N de M's locomotive fleet and replace rundown units, the project included the expenditure of Mex$420 million for the purchase of 90 locomotives with total power of 270,000 hp. That target was well exceeded between 1972 and 1973, during which time 144 locomotives with a total of 364,800 hp were purchased. For purposes of evaluating and comparing costs, we can say that the targets were met with all motive power purchased in 1972 and part of that purchased in 1973, as shown below: Unit Total Cost Year Number Power Power (millions of Mex$) 1972 46 3,000 hp 138,000 hp 194.0 1973 38 3,600 hp 136,800 hp 161.3 T o t a 1 274,800 355.3 In terms of total power, 102% of the target was achieved at a total cost which was 15% less than the estimate. - 34 - Freight cars The project had called for the purchase and entry into service of 2,800 freight cars at a cost of Mex$625 million. From 1973 to 1974, 3,450 units were purchased, of which 1,700 were totally financed by the World Bank; the Bank helped finance the remaining 1,750 through the purchase of imported parts. The 3,450 vehicles actually cost Mex$821.3 million. The types of cars and their costs are shown below: 1973 1974 Number Millions Number Millions of Mex$ of Mex$ Boxcars 2,750 714.5 Gondolas 700 106.8 - - Tota 1 700 106.8 2,750 714.5 The above figures show that 123% of the target was met at a total cost 31.4% above that originally projected. Axles and bearings In order to replace friction rollers with axles and bearings, an expendi- ture of Mex$21 million was planned for the equipping of 1,000 freightcars. From 1972 to 1974 parts worth Mex$21.9 million were bought for 1,500 cars. Although the cost was only 4% higher, the target was exceeded by 50%. Passenger coaches In order to improve the quality of passenger service the purchase of 64 used passenger coaches and 84 used mail cars was planned, at a cost of Mex$43 million. It was not until late 1976 that N de M began to receive an order of 200 coaches manufactured in Canada, of which 140 were second-class and 60 first-class. However, with regard to passenger coaches, we consider that the target was not reached because the used coaches we had in mind were not purchased and those recently purchased were included in the project financed by Loan 1232-ME. A total of 30 mail cars were purchased in 1976, although for the same reasons as indicated above, we do not consider the appraisal targets to have been achieved. PROJECT COMPLETION REPORT LOAN 825-ME ACTUAL AND PROJECTED COMPLETION OF PHYSICAL WORKS Units Completed Date of Completion % Completed by Major Works or Components Units Actual Projected Actual Projected Projected Date (1) Bridges No. wks. 576 - 1977 1976 77% Track renewal km. 723 690 1975 1976 105% Realignments km. 38.9 35.0 1974 1976 111% Sidings km. 46.6 40.0 1976 1976 117% Wooden sleeper Thousands 927.5 4,000 1977 1976 23% Track equipment - - 1975 1976 100% (2) Ballast gondolas No. units 40 40 1975 1976 100% Section houses, hospitals No. 390 - 1974 1976 112% (2) Ballast - - - 1975 1976 89% (2) Others - - - 1976 1976 136% (2) Workshops - - - 1974 1976 106% (2) 1 Yards - - - 1977 1976 84% (2) Stations - - 1973 1976 254% (2) Others - - - 1973 1976 218% (2) Locomotives hp 274,800 270,000 1973 1976 102% Freight cars No. units 3,450 2,800 1974 1976 123% Axles and bearings Equipped 1,500 1,000 1974 1976 150% cars Passenger cars No. units - 64 - 1976 0% Mail cars No. units - 64 - 1976 0% Workshop machineries - - 1975 1976 127% (2) Telecommunications - - 1980 (3) 1976 16% (2) Consulting services - - 1976 1976 138% (2) (1) The percentage is based on appraisal projections. (2) Based on actual expenditure. (3) UHF and VHF project under way is different from that planned for 1972-1973. - 36 - PROJECT COMPLETION REPORT LOAN 825-ME ACTUAL AND PROJECTED COSTS (Millions of Mex$) Original Project Realized Project Actual as % C 0 N C E P T S Local Foreign Total Local Foreign Total of projected TRACK AND STRUCTURES Bridges 150.0 - 150.0 158.0 - 158.0 105 Track renewal 39.0 197.0 236.0 278.8 247.0 525.8 222 Sidings 24.0 - 24.0 21.7 - 21.7 90 Wooden sleepers 114.0 106.0 220.0 - 79.3 79.3 36 Track machinery and ballast gondolas 8.0 32.0 40.0 - 76.4 76.4 191 Section houses 80.0 - 80.0 89.3 - 89.3 112 Ballast 43.0 - 43.0 38.2 - 38.2 89 Realignments 26.0 - 26.0 20.9 - 20.9 80 Others 71.0 - 71.0 96.4 - 96.4 136 Subtotal 555.0 335.0 890.0 703.3 402.7 1,106.0 124 STRUCTURES Workshops 57.0 - 57.0 60.2 - 60.2 106 Yards 100.0 - 100.0 101.7 - 101.7 102 Stations 14.0 - 14.0 35.5 - 35.5 254 Others 18.0 - 18.0 39.2 - 39.2 218 Subtotal 189.0 - 189.0 236.6 - 236.6 125 TRACTION EQUIPMENT & ROLLING STOCK Locomotives - 420.0 420.0 - 355.3 355.3 85 Freight cars 258.0 367.0 625.0 459.4 361.9 821.3 131 Axles & bearings - 21.0 21.0 - 21.9 21.9 104 Passenger & mail cars - 43.0 43.0 - - - Workshop machinery 20.0 31.0 51.0 18.8 46.2 65.0 127 Subtotal 278.0 882.0 1,160.0 478.2 785.3 1,263.5 109 TELECOMMUNICATIONS (1) 101.0 88.0 189.0 150.6 231.1 381.7 202 CONSULTING SERVICES 3.0 9.0 12.0 - 16.6 16.6 138 Price contingencies - 96.0 96.0 - - - - Total 1,126.0 1_410.0 2 536.0 1,568.7 1,435.7 3,004.4 118 UP/Septiembre 1978. (1) Proportional part of UHF and VHF project financed by Loan 825-ME. PORJECT COMPLETION REPORT LOAN 825-ME TRACK RENEWAL 1972 1973 1974 1975 SECTION Length Millions Millions Millions Legth Millions Length_Mex$Length_Mex_$ Length _Mex$ Le h Me P6njamo - La Piedad 18.2 10.9 25.5 15.7 - - Cd. Frontera - El Oro 37.7 22.6 31.6 19.4 35.4 26.6 - - Monterrey - Nuevo Laredo 17.6 10.6 19.7 12.1 57.2 43.0 123.1 100.2 Cuautla - Los Arcos 23.8 14.3 9.9 6.1 - - - - Huehuctoca - Arag6n (Lfnea B) - - 20.6 12.7 21.2 15.9 46.6 37.9 Chicalote - San Luis Potosf . 16.7 10.0 - - 25.5 19.2 - Jalapa - Veracruz - 39.9 30.0 84.8 69.1 Tlaltepoxco - Arag6n - - - 27.1 16.8 41.2 32.7 Total 114.0 68.4 107.3 66.0 206.3 151.5 295.7 239.9 Cumulative total 114.0 68.4 221.3 134.4 427.6 285.9 723.3 525.8 UP/Septiembre, 1978. MEXICAN NATIONAL RAILWAYS St Track and Structures Department Map of N de M's Railway Lines .~ ~ ~ . PA. 7. . DJUF SS T A T E S #,-, P R 0 J E C T S 9"1 OSSOE PNLV o .i nNi PENJAMO-LAPiEA '.2 CD. FRGNTERA- EL RO s ni " \traco tx3 MONTERREY-NUEVO 1,AREDO rs, 4 CUAUTLA-LC5 ARvC5S r 8 6" T L ALT EFO X C 0- ..r.GON 1,-i a94 ýpA o 7 CHICALOTE-5AN LUWS PCTCS4 I > owlittSVI. L 8 JALAPA-VERACRUZ Q. n o enn PA ç A DoN D il,Co 1 .5- Noocicoýý LO s, p.i d . t >dV>LR i i MAZ1tanitgo'.J. ../ 4CUcULA-c3AsCC c o" TÅ ', SC A L IC N E REHABILITATION PROGRAM \N' XP TRACK RENWMAL PROGRAM C NEW RAILS 1151b/yd 1 972 - 1 975 - 39 - Shop machinery In order to improve the efficiency of the maintenance and repair of traction equipment and rolling stock, it was planned to expend Mex$51 million for shop machinery, a figure that was exceeded in 1975. The project was there- fore completed in this area. Telecommunications An investment of Mex$189 million had been planned for 1972 to 1973 for works such as carrier installation, dispatch circuits and signals for level crossings. In 1975 modernization of the telecommunications network began and Mex$381.7 million was expended under the project, representing 32% of the total cost of Mex$1,192,900,000. The work will be completed by 1980. The World Bank is partially financing this project with US$13.4 million under Loan 825-ME and US$13.2 million as part of Loan 1232-NE. Consulting services The 1972-1973 project included Mex$12 million for consulting service. That amount was reached by 1976, by which time Mex$16.6 million had been spent for 17,600 man-hours of foreign advisory services. PV/September 1977 IV. TRAFFIC AND OPERATIONS Attached is a comparative chart of the major indicators of efficiency in operations included under the 1972-76 Plan of Action, as part of Loan Agree- ment 825-NE. With regard to personnel, the goal of maintaining the staff at 59,000 was not achieved, mainly because we do not feel it was a realistic target. Despite the policy of increasing the staff by as little as possible, there are areas in which growing operations make it absolutely necessary to increase railway manpower. It should be noted that in 1972 total personnel, including unbudgeted positions, was already 60,230. With regard to operating ratios, the Bank is well aware that despite higher rates and traffic, the increases in costs of personal services and equip- ment, plus the impact of the devaluation of the Mexican peso, prevented us from reaching the goals stated in the Plan of Action. As regards other indicators of efficiency, such as locomotive runs, net tons/car in service-day, net ton-km of freight per train hour and percentage of cars in repair, the targets in the Loan Agreement were satisfactorily met, with the exception of the percentage of locomotives in repair. This last is a matter PROJECT COMPLETION REPORT LOAN 825-ME MEXICAN NATIONAL RAILWAYS EXECUTION OF PLAN OF ACTION for 1972-1976 1972 1973 1974 1975 1976 C 0 N C E P T Projected Actual Projected Actual Projected Actual Projected Actual Projected Actual Number of Employees 59,000 59,633 59,000 59,893 59,000 60,125 59,000 61,250 59,000 61,907 Operating ratio 1.43 1.43 1.43 1.51 1.27 1.54 1.30 1.25 1.17 1.62 Net ton-km/freight train hour 20,000 22,550 20,000 22,147 20,000 23,856 20,000 25,807 20,000 28,717 Annual running loco- motive kilometrage 90,000 90,170 92,000 86,421 95,000 94,634 97,500 103,267 100,000 104,869 Locomotives in repair (%) 15 15 15.9 16.1 15 16.6 15 17.4 15 13.9 a Net ton-km/freight car/day in service 1,450 1,473 1,560 1,298 1,650 1,383 1,700 1,577 1,750 2,122 Cars in repair (%) 9 6.4 8 5.4 7 4.6 6 4 5 4.5 1) Figures conveyed by N de M (Sr. Gorrostiza) on phone to M. Lal: x on January 2, 1979 = on January 5, 1979 2) Operating expenditure, excluding interest and expenses carried forward from previous fiscal years/operating revenue plus taxes on gross income, minus revenue carried forward from previous fiscal years. Pre-1974 data not reliable. MEXICAN NATIONAL RAILWAYS Actual Traffic for the Transportation of Principal Products 1972 1973 1974 1975 1976 1977 C 0 N C E P T S Tons Ton-km Tons Ton-km Tons Ton-km Tons Ton-km Tons Ton-km Tons Ton-km Forestry 286 208 313 236 425 333 346 285 356 259 362 276 Agriculture 7,861 3,567 8,258 4,431 9,870 5,103 10,518 5,225 9,437 4,803 10,841 5,955 Livestock 136 96 141 117 168 160 115 114 105 90 114 113 Mineral 2,964 2,280 2,968 2,179 3,721 2,830 2,796 2,185 2,574 1,952 2,732 2,055 Petroleum 5,270 2,447 5,456 2,471 6,186 2,732 6,685 3,060 7,201 3,135 6,477 2,617 Construction 6,561 1,086 6,621 1,147 6,753 1,311 7,015 1,462 8,781 1,961 9,896 2,443 Inorganic 2,575 1,146 3,009 1,189 4,470 1,425 3,784 1,611 2,791 1,520 3,015 1,752 Industrial 6,503 3,845 7,272 4,569 8,418 5,612 8,553 6,002 8,975 6,163 8,984 6,255 Steel 9,565 4,678 10,210 4,964 11,490 5,883 11,317 6,512 10,993 6,891 12,348 7,202 Others 115 59 110 61 199 68 109 64 109 65 108 67 TOTAL 41,836 19,412 44_358 21,364 51,700 25,457 51,238 26,520 51_322 26,839 54,877 28,735 UP/Septiembre, 1978. Thousands of tons Millions of tons-km - 42 - of concern to us and we will have to take effective steps to find out why our locomotive availability decreased. Solutions should be speedily identified. Annex B-4 gives the data for increases in traffic, broken down by major products and actual figures. It can be seen that the original forecasts were well exceeded. The traffic forecast in the appraisal for 1976 was 47.3 million tons; 51.3 million tons were actually transported, i.e. 8.5% more than the fore- cast. In ton-km, the forecast was 23,600 million; in fact, 26,839 were transported, a difference of 13.7%. Lastly, as stipulated in the guidelines, Annex B3-1 gives the data for projected and actual operations. V. BORROWER'S FINANCIAL REPORT Attached are Annex B-5, which provides data on actual and projected balances for 1972-77, Annex B-6, which shows actual and projected income and expenditure for the same period, and Annex B-7, which provides data on project financing. PROJECT IMPACT ON THE IMPROVEMENT OF FINANCES Although N de M's financial situation has not improved markedly in recent years, owing mainly to inflationary pressures and the devaluation of the peso with respect to the dollar, it has been able to prevent its situation from worsen- ing thanks to increases in revenue, reductions in certain costs through elimin- ation of nonproductive services, and significant investments that enabled it to meet the growing demand for transportation. The increase in revenues is attributable partly to the considerable increases in traffic volume in recent years and partly to the recent increase in rates. The purchase of many locomotives and rolling stock, together with rehab- ilitation works and the increase in the capacity of facilities, enabled N de M to meet actual demand, with the resulting record increases in traffic . Between 1972 and 1977 tons-km rose from 19,412 million to 28,735 million, i.e. 48% in five years. Between 1973 and 1974 the gain was 19%. Undoubtedly, these increases were attributable not only to economic growth, but also to the investment program financed in part by Loan 825-ME. With regards to rates, on January 1, 1975 rates were increased by 40% for Express and 44% for Freight's, and the uniform tariff was instituted. On September 1, 1976 an increase of 20% became effective, although the reclassi- fication of some items softened the real impact, thus making an effective rate increase of 15%. On December 16, 1976, there was another 20% increase and lastly, on January 27, 1978 a rise of 15% was authorized. Passenger rates went up on February 1, 1975 (about 22%), August 16, 1976 (14%) and January 27, 1978 (20%).* * 23% on First class and 19% on Second class. MEXICAN NATIONAL RAILWAYS Actual and Projected Traffic for the Transportation of Principal Products 1972 1974 1976 Tons * Ton-km ** Tons * Ton-km ** Tons * Ton-km ** Pro- Pro- Pro- Pro- Pro- Pro- C 0 N C E P T S Actual jected Actual jected Actual jected Actual Jected Actual jected Actual jected Forestry 286 419 208 307 425 428 333 314 356 430 259 315 Agriculture 7,861 8,315 3,567 3,809 9,870 8,730 5,103 4,007 9,437 9,145 4,803 4,207 Livestock 136 199 96 147 168 212 160 156 105 220 90 160 Mineral 2,964 2,637 2,280 1,792 3,721 2,806 2,830 1,852 2,574 2,946 1,952 1,936 Petroleum 5,270 5,394 2,447 2,312 6,186 5,597 2,732 2,387 7,201 5,897 3,135 2,502 . Construction 6,561 6,722 1,086 958 6,753 7,181 1,311 1,063 8,781 7,541 1,961 1,134 Inorganic 2,575 2,505 1,146 862 4,470 2,679 1,425 924 2,791 2,800 1,520 966 Industrial 6,503 5,277 3,845 3,019 8,418 5,586 5,612 3,463 8,975 5,970 6,163 3,817 Steel 9,565 9,457 4,678 5,308 11,490 10,076 5,883 5,946 10,993 10,686 6,891 7,501 Others 115 1,591 59 1,088 199 1,682 68 1,155 109 1,673 65 1,160 Total 4 42,516 19,412 19,603 51,700 44,977 25,457 21,267 51,322 47,308 26_839 23L600 *) Thousands of tons **) Millions of ton-km - 44 - MEXICAN NATIONAL RAILWAYS Allocation of Proceeds of Loan 825-ME (Millions of US$) Cumulative Cumulative Partial (Actual) (Budgeted) I. 1972/73 Fiscal Year At September 30, 1972 - - 4.0 At December 31, 1972 0.2 0.2 16.0 At March 31, 1973 0.1 0.3 24.0 At June 30, 1973 1.9 2.2 32.0 II. 1973/74 Fiscal Year At September 30, 1973 5.6 7.8 41.0 At December 31, 1973 5.6 13.4 49.0 At March 31, 1974 9.2 22.6 55.0 At June 30, 1974 12.3 34.9 62.0 III. 1974/75 Fiscal Year At September 30, 1974 5.4 40.3 67.0 At December 31, 1974 2.6 42.9 73.0 At March 31, 1975 1.7 44.6 74.0 At June 30, 1975 3.3 47.9 75.0 IV. 1975/76 Fiscal Year At September 30, 1975 3.7 51.6 At December 31, 1975 4.7 56.3 At March 31, 1976 8.5 64.8 At June 30, 1976 1.4 66.2 V. 1976/77 Fiscal Year At September 30, 1976 1.3 67.5 At December 31, 1976 0.5 68.0 At March 31, 1977 3.8 71.8 At June 30, 1977 0.3 72.1 VI. 1977/78 Fiscal Year At September 30, 1977 2.9 75.0 UP/Septiembre, 1978. MEXICAN NATIONAL RAILWAYS N de M Actual & Projected Income and Expenditure for 1972-1973 1972 1973 1974 1975 1976 1977 Items Actual Projected Actual Projected Actual Projected Actual Projected Actual Proiected Actual Projected ---------------------------------------------In Millions of Pesos----------------------------------------------------- Operating revenue Freight service 1,945 2,291 2,170 2,527 2,643 2,980 3,947 3,078 4,066 3,561 5,526 Passenger service 147 163 126 249 147 302 176 357 183 358 247 Miscellaneous service 152 181 164 187 173 192 258 197 257 200 461 Total operating revenue 2,244 2.635 2.460 2.963 2.963 3.474 4.381 3.632 4.506 4.119 6.234 Operating expenditure (1) Track maintenance 588 683 853 1,037 1,358 1,585 Equipment maintenance 862 897 1,124 1,407 1,618 2,085 Transportation 1,039 1,262 1,618 1,924 2,191 2,648 Overhead 792 895 1.113 1.327 1.511 1.922 Total operating expenditure 3,301 3,275 3,737 3,358 4,708 3,468 5,695 3,688 6,678 3,797 8,240 Depreciation 231 252 242 264 269 276 301 288 374 300 407 Net operating expenditure 3.532 3.527 3.979 3.622 4,977 3,744 5.976 3.976 7.052 LM 8.647 Net operating revenue (loss) ( 1,288) ( 892) ( 1,519) ( 659) ( 2,014) ( 270) ( 1,615) ( 344) ( 2,546) 22 ( 2,413) Net revenue from other sources ( 100) ( 60) ( 200) ( 60) ( 203) ( 60) ( 206) ( 60) ( 1,255) ( 60) ( 692) Net income (loss) ( 1,388) ( 952) ( 1,719) ( 719) ( 2,217) ( 330) ( 1,821) ( 404) ( 3,801) ( 38) ( 3,105) Interest 182 186 253 209 354 239 596 246 1,091 250 1,595 Net income (deficit) ( 1,570) ( 1,138) ( 1,972) ( 928) ( 2,571) ( 569) ( 2,417) ( 650) ( 4,892) ( 288) ( 4,700) Ratios Operating 147 124 152 113 159 100 130 102 148 92 132 Operating plus depreciation 162 136 170 124 175 109 142 111 184 101 150 Breakdown of operating expenditure Personnel 2,341 2,277 2,687 2,350 3,330 2,461 4,075 2,683 4,855 2,787 3,950 Fuel 143 164 186 168 270 173 285 176 308 180 347 Other materials 685 474 626 453 747 427 902 396 1,093 370 1,268 Other 132 360 238 387 361 407 433 433 422 460 675 (1) As the operating expenditure projection is not broken down by "track maintenance" "equipment maintenance", "transportation, and "overhead", notations are made in the pertinent colums. Source: Report on OB 14 on Income and Expenditure. - 46 - Although it is still not possible to assess the results, during the execution of the project measures to improve N de M's future financial situation were initiated. These included the project for modernization of the telecommun- ications network and the operations control system, as well as measures to improve planning and organization of N de M's activities, permitting a better allocation of available resources. Lastly, it is clear that the partial financing of the project by the World Bank, given its favorable interest rates and repayment periods, as well as the better prices obtained through international competitive bidding, had a positive effect on N de M's financial situation. VI. INSTITUTIONAL DEVELOPMENT As the Bank recommended, N de M carried out the 1972-73 Investment Plan, but it was not until 1977, that the Secretariat of Communications and Transport- ation, which has reponsibility for the sector, began to act formally in its coor- dination. Toward the end of the last six-year period the Secretariat of Communica- tions and Transportation prepared a National Transportation Plan through 1994. Although the reasons why it was not put into effect officially are not know, its content and recommendations are taken into account by the Secretariat in making its policies and decisions. The Secretariat's Passenger Transportation Study was completed and N de M studied each train, which, as the Bank has been informed, led to the elimination of certain runs. The Secretariat informed the Bank of the major conclusions and recommend- ations of the Study of Road User Charges, which we expect can be implemented soon, to the benefit of the entire sector. Railway unification is a reality. Early last year the decision was taken to complete the task, beginning with the appointment of Mr. Luis G6mez Z. as Director General of all railway companies. The agreements and formal procedures for unification are now being completed. With regard to new rail lines, only the Cor6ndiro-Lazaro Cfrdenas line, which connects the Lizaro C6rdenas steel plant with the national railway system, was opened. In addition, work on the double track for the section Mexico City - Queretaro and the northern spur from Mexico City between Jaltocan and Teotihuacan was continued. December 1977, the Secretariat of Finance and Public Credit was again approached on the elimination of taxes on gross receipts from freight service and authorization to consider them as company revenue. To date no response has been received. At the last meeting of the Board of Directors the matter was taken up again, and the Secretary of Communications and Transportation was asked to inter- vene. MEXICAN NATIONAL RAILWAYS N.de M Actual & Projected Balances for 1972-1977 1972 1973 1974 1975 1976 1977 Items Actual Projected Actual Projected Actual Proiected Actual Projected Actual Projected Actual Projected ------------------------------------------------- In of g---------------In ions of e --------- Fixed assets Book value (Gross) 17,390 17,990 18,399 19,212 20,037 20,362 22,677 21,112 28,406 21,862 31,014 Less: accrued depreciation 2,5 2,959 3 3 , 3,19 3,49 3,358 3,77 -6 4,8 3,99 Total net fixed assets 14,532 15,031 15,266 15,989 16,842 16,863 19,319 17,325 24,794 17,775 27,017 Deferred assets 144 60 199 60 173 60 68 60 211 60 157 Investments and deposits 59 20 208 20 151 20 233 20 91 20 757 Current assets Cash on hand and in banks 139 65 137 80 188 110 272 135 273 160 605 Cash in transit 27 55 42 60 36 60 126 65 129 70 164 Accounts receivable (net, without provision for bad debts) 229 170 189 180 248 200 489 210 461 220 862 Inventory (net, without provision for obsolescence and deterioration) 495 552 504 572 677 592 1,444 612 1.576 632 1,787 Total current assets 890 842 872 892 1,4 962 233 1,022 2439 1,082 3182T Total assets 15,625 15,953 16,545 16,961 18,315 17,905 21,951 18,427 27,535 18,937 31,349 Current liabilities 589 400 641 400 645 420 913 430 1,053 440 1,298 Deferred liabilities 2 40 1 40 1 40 40 40 Debt Short and medium-term loans and supplier's credits 1,285 2,205 1,679 1,890 1,083 1,642 1,609 1,349 2,957 1,116 2,078 Long-term loans 1,072 216 1,430 775 3,69 1.387 638 1.83 1150 2,292 13,8 Total debt 2,357 2,421 3,109 2,665 4,773 3,029 7,990 3,183 14,463 3,408 15,894 Capital and net worth Government contribution 13,030 14,230 13,171 14,784 13,325 14,985 13,556 15,424 13,908 15,337 14,741 Less: deficit 353 1,13 377 928 429 569 508 650 1,88 288 584 Net capital 1 13,092 12019 14,157 Total liabilities 15,625 15,953 16,545 16,961 18,315 17,905 21,951 18,427 27,535 18,937 31,349 Ratios Current assets/current liabilities 1.5/1 2.1/1 1.4/1 2.2/1 1.8/1 2.3/1 2.6/1 2.4/1 2.3/1 2.5/1 2.6/1 Liquid assets/current liabilities 0.7/1 0.7/1 0.6/1 0.8/1 0.7/1 0.9/1 1.0/1 1.0/1 0.8/1 1.0/1 1.3/1 Debt/capital 16/84 16/84 20/80 16/84 27/73 17/83 38/62 18/82 55/45 18/82 53/47 Note: The revaluation of funded debt in foreign currency at December 31, 1977 is considered under 1978 operations and was Mex$1.516 billion. MEXICAN NATIONAL RAILWAYS Project Financing LOCAL (Millions of USS) FOREIGN (Millions of US$) Local Foreign Local BNOP- NAFIN- CNCF Government Own EIM- E.D.C. SWISS U.S. C 0 NC E P T S Pesos US$ US$ SA SA (Constructors) Resources Resources IBRD BANK (Canada) BANK STELL TRACK AND STRUCTURES Bridges 158.0 - 10.6 10.4 - - 0.2 - - - - - - Track renewal 278.8 19.8 22.3 21.3 - - 1.0 - 18.2 - - - 1,6 Realignment 20.9 - 1.7 1,7 - - - - - - - - - Sidings 21.7 - 1.6 1.1 - - 0.5 - - - - - - Wooden sleepers - 6.3 - - - - - - 6.3 - - - Track machinery Ballast gondolas - 6.2 - - - - - - 2.2 2.7 1.3 - - Section houses and hospitals 89.3 - 7.1 7.1 - - - - - - - - - Ballast 38.2 - 3.1 2.1 - - 1.0 - - - - - - Others 96.4 - 7.5 5.2 - - 2.3 - - - - - - Subtotal 703.3 32.3 53.9 48.9 - 5.0 - 26.7 2.7 1.3 - 1.6 STRUCTURES Workshops 60.2 - 4.9 4.7 - 0.2 - - - - - Yards 101.7 - 7.1 6.5 - - 0.6 - - - - - - Stations 35.5 - 2.8 2.5 - - 0.3 - - - - - - Others 39.2 - 3.1 1.8 - - 1.3 - - - - - - Subtotal 236.6 - 17.9 15.5 - - 2.4 - - - - - - TRACTION EQUIPMENT AND ROLLING STOCK Locomotives - 28.4 - - - - - - - 25.0 3.4 - - Freight cars 459.4 29.0 36.7 - - 36.7 - - 29.0 - - - - Axles and bearings - 1.7 - - - - - - 1.7 - - - - Passenger and mail care - - - - - - - - - - - - Shop machinery 18.8 3.7 1.5 0.5 - - 0.5 0.5 3.0 0.7 - - - Subtotal 478.2 62.8 38.2 0.5 - 36.7 0.5 0.5 33.7 25.7 3.4 - * TELECOMMUNICATIONS 150.6 13,4 7.6 7.6 - - - - 13,4 - - - - CONSULTING SERVICES - 1.2 -1.2 - Total 1,568.7 109.7 117.6 72.5 - 36.7 7.9 0.5 75.0 28.4 4.7 - 1.6 1/ De esta cantidad 0.3 milliones fueron ejercidos por 30 de Septiembre, 1978. is Secretaria de Comunicaciones y Transportes. - 49 - N de M implemented the cost system recommended by the Bank, employing outside consultants. This study was very useful in the analysis that will be the cornerstone for the proposal of rate increases to the competent authorities. Payment for mail service, which before Bank intervention was merely token, was satisfactory between 1972 and 1976. Starting in 1977 there were some irregularities that have been made known to the Board of Directors, and we are looking forward to a speedy and effective solution. On January 1, 1975 freight rates were increased 40% and the uniform tariff was instituted. On September 1, 1976 an increase of 20% became effective, although the reclassification of some items diminished the real impact. On December 16, 1976 there was another 20% increase and, lastly, on January 27, 1978 a rise of 15% was authorized. Passenger rates went up on February 1, 1975 (about 17.5%), August 16, 1976 (14%) and January 27, 1978 (20%). Each year the Secretariat of Finance and Public Credit has been informed of the inevitable deficit in passenger train service, with a request that part of the total subsidy be earmarked to offset the deficit incurred in providing such service. N de M has been carrying out studies on virtually all branches of the system, and the Bank has been kept abreast of the specific measures taken to improve service and reduce losses. As the Bank knows, the goal of covering operating costs, debt service and 40% of investments by 1981 at the latest had to be postponed. Even in Loan Agreement 1232-ME that target was changed, considering taxes on freight and passenger receipts as revenue in order to cover operating expenses and services demanded in 1986. These matters are being reviewed and probably will have to be put off for yet another year. During project execution N de M received outside consulting assistance, primarily in the areas of freight and mail traffic, regional organization, opera- tions, maintenance of locomotives and rolling stock, procurement and warehousing, telecommunications, reports to management and financial controls, investment and operations control, among others. Some of the studies were extremely useful such as those on the installa- tion of the new telecommunications network, the information and operations control system and the yard control systems, as well as centralized control of traction equipment and the above-mentioned study on costs. Without challenging the validity of the consultants' recommendations, other studies such as those on procurement and warehousing, wages, reports to management and financial controls, could not be implemented. Other recommenda- tions on operations and investment analysis were only partially approved. In some cases, such as regional organization, where recommendations had been implemented, it was decided to return to the original situation. - 50 - PLANNING The first formal planning at N de M dates back to 1965, when the Planning Advisory Group was established, mainly to carry out studies and projects to improve the company's operations and administration, although no plans and programs regard- ing operations or the expansion of capacity were prepared. In line with the recommendations of the World Bank on the matter at the time of the negotiations for Loan 825-ME, during the early years of the last six- year period a presidential decree ordered that programming and organization and methods units were to be established in public sector entities, including decentral- ized enterprises. In compliance with that order, in 1971, the Planning and Organization Office was established, and with slight modifications has evolved into its present form. The main function of the Planning and Organization Office is the preparation and monitoring of N de M's operation and investment plans and studies on organiza- tion, systems and work procedures. PROGRAMMING UNIT PURPOSE: To ensure that N de M's activities are carried out in conformity with formal plans and programs in order to improve efficiency in the utilization of its resources. FUNCTIONS: - Prepare, in coordination with company units, comprehensive studies and short-, medium-, and long-term plans. - Prepare, in coordination with N de M departments, investment and operating programs for the short-, medium-, and long-terms. - Monitor investment, operating, expansion and improvement programs, correcting any irregularities. - Advise the General Manager in the setting of N de M's targets and policies. - Advise N de M departments in budgetary and programming matters. - Establish guidelines in order to standardize the criteria and pro- cedures for programming and budgeting. - Carry out studies on the future demand for services provided by N de.M. - The unit chief serves as second technical secretary to the Internal Management Committee. - 51 - PROJECT EVALUATION UNIT PURPOSE: To ensure the optimal use of available resources through the proper ranking of projects and monitoring of results. FUNCTIONS: - Evaluate investment projects, carrying out technical and economic studies and observing whether they meet the general objectives and policies of the company. - Propose alternatives to proposed projects. - Rank, according to available resources, projects approved in accord- ance with established programs. - Monitor the results of projects carried out, if necessary indicating corrective measures for the full utilization of resources. - Carry out studies to identify problems which may arise over the short-, medium- andlong-term in operations procedures and services, in order to provide for the expenditure necessary to remedy them. - Prepare such special studies as may be necessary in connection with the unit's activities. COSTS UNIT PURPOSE: To ensure that the company has an efficient cost system. FUNCTIONS: - Establish and implement systems and methods for calculating the company's costs. - Establish cost systems for setting rates. - Establish policies on cost utilization. - Calculate the cost of services provided by N de M, mainly to determine their profitability. - Analyze variations in costs as a function of production levels. - Prepare and use in the respective studies, cost calculation methods for specific services (special cases). - Conduct research on costs based on the systems and methods employed - 52 - in the various areas of the company, in order to establish control indicators. - Take part in the preparation or revision of data formats and reports, suggesting appropriate measures, in order to have more suitable data for costing. In addition, supervise and analyze data sources with a view to making the resulting costs as realistic as possible. ORGANIZATION AND METHODS UNIT PURPOSE: To improve company organization and ensure that systems, methods and procedures are as efficient as possible for the optimization of its operations. FUNCTIONS: - Conduct a continuing study and analyses of the basic and functional structure of the company, proposing changes to increase efficiency, if necessary. - Advise N de M departments in the definition of their objectives and policies. - Prepare and keep up to date the organization manuals of N de M departments. - Review administrative systems and procedures on a continuing basis, and ensure that they are making efficient use of company resources. - Prepare and keep up to date manuals of procedure, regulations and instructions necessary for the proper operation of management systems. - Design or amend, in conjunction with N de M departments, the control mechanisms that ensure the proper functioning of the management systems. - Coordinate studies on job descriptions, salary scales and staff eval- uation. - Analyze the data flow and information system to ascertain whether each organization level receives the information necessary for proper decision- making. - Study the organization of the services provided by the company in order to propose improvements. - Analyze, modify and design printed forms. - Analyze the use of office equipment, machinery and space, with a view to its improvement. ORGANIZATION OF THE PLANNING AND ORGANIZATION OFFICE DEPUTY MANAGER ASSISTANT ORGANIZATION PROGRAMMING PROJECT EVALUATION. COSTS STATISTICS AND AND METHODS UNIT UNIT UNIT INFORMATION UNIT UNIT - 54 - - Monitor N de M's system of suggestions and grievances. - The unit chief serves as first technical secretary to the Internal Management Committee. STATISTICS AND INFORMATION UNIT PURPOSE: To ensure that N de M has an efficient statistics and information system. FUNCTIONS: - Prepare statistical reports for the efficient management of the company. - Provide the statistical reports required by each department. - Provide statistical reports to government or private parties that request them. - Analyze the statistics in order to improve them and provide company officers and officials with better information for decision-making. - Prepare the annual document for the President's Report. - Prepare the bi-monthly report for the company's Board of Directors. - Prepare the reports for the World Bank and Eximbank. - Oversee all administrative aspects of the Planning and Organization Office. - Administrative matters concerning Office personnel. - Office budget. - Drafting. - Files, correspondence, reprography, internal services. - Office petty cash. ORGANIZATION 1970 - 1978 N de M's basic structure has been modified gradually in accordance with the development of the country, for which more and better rail service is required.. Attached is a chart showing the company's basic organization in 1970 and today. - 55 - One of the major organizational changes in recent years was the establish- ment of the Deputy Manager's office, the Office of Planning and Organization, the Office of Telecommunications, Signaling and Electricity, and the Systems Department. In 1975 the regional offices were established; they were eliminated in 1977. The Office of Systems also was established in that year; it was the precursor to the present Systems Department, which is directly under the General Directorate. The Personnel and Legal Departments were reorganized and the Accounting Department is now being restructured. The Budgeting Department and Comptroller's Office are now under study. Likewise, the Superintendency of Car Service, formerly under the Operations Office, was reorganized and is now under the Traffic Office. Within the Management Office the Fixed Assets Advisory Unit was established, and under the Traffic Office, the Office of Equipment Accounts was created in order to improve the control of rolling stock. Within the Track and Structures Office the Department of Track Equipment was established and the Terminals and Rehabilitation Advisory Unit was eliminated, being replaced by the Projects, Construction and Unit Price Control Advisory Units. VII. ECONOMIC EVALUATION An economic evaluation was made of the investments included in the 1972-73 project, using actual data for costs and a more up-to-date estimate of benefits. Eighty-four percent of investments were analyzed, as detailed in Annex B-8, showing an internal rate of return of 20.4%, which we consider satisfactory and higher than the opportunity cost of capital in Mexico. The following is a breakdown of the calculations and main evaluation hypotheses for major project components, showing that all capital investments had an acceptable annual rate of return. In addition to the annual rate of return calculations, a sensitivity ana- lysis was made of the cost/benefit ratio for different discount rates, and the year of capital recovery was calculated. TRACK AND BRIDGE REHABILITATION The economic evaluation of track renewal investments was based on the increased speed in train operation made possible by such works. It was therefore necessary to calculate the cost per train-hour, taking into account the detailed hourly costs in terms of locomotive and car depreciation and wages of freight train crews. Locomotives: Amortization and interest for an average 2,200-hp locomotive (1) with a value of Mex$5,500/hp, useful life of 20 years, at 12%, working 3,800 hr/year, 2,200 X 5,500 X 0.1338 / 3,800 = 426/1oc-hr, (3) 426 X 2.24 10c/train - Mex$954/train/hr MEXICAN NATIONAL RAILWAYS General Organizational Chart 1970 Board of Directors lGeneral Manager's Office 1 r -5--7 -- -12... 1412-9- 34 2 3 8 31 9 - } = 34 t2425 32 35 136 37* 38 15 16 2 0 2 1 28 29 r 4 6M] l1 11n-l 13 @ - 2 (2 26 33 - 39 - 40 41 SEE KEY - 57 - GENERAL ORGANIZATIONAL CHART-1970 Key: 1. Planning Unit 2. Technical Department 3. Statistics Office 4. Studies and Projects 5. Comptroller's Office 6. Illegible 7. Finance Office 8. Budgets 9. Illegible 10. Illegible 11. Illegible 12. Traction Equipment and Rolling Stock Office 13. Illegible 14. Office Manager 15. Illegible 16. Illegible 17. Management Office 18. Legal Department 19. Personnel Department 20. Medical services 21. Social Services 22. Illegible - 58 - 23. Operations Office 24. Transportation Department 25. Electricity and Telecommunications Department 26. Illegible 27. Track and Structures Office 28. Illegible 29. Illegible 30. Traffic Office 31. Passenger Traffic 32. Freight Traffic 33. Illegible 34. Procurement Office 35. - 41. Illegible Advisory Assistance Report Ferrocarriles Nacionales de M6xico Loan 825 - ME Study Description Results System grouping program Integration of the traffic matrix in Improvement of the operation of the system in order to define freight direct and fast trains in the volumes to be carried on different system, thereby increasing types of trains. efficiency Integration of company divisions into four Integration of the divisions of the Establishment of the regional regions system into 4 major regions, permit- organization in 1975 to 1977. ting greater control and coordination Organization not yet operating. of dynamic areas. Organizational changes in operations Integration of the Traction Equipment, Implementation of the current Operations, Track and Structures and organizational plan, which includes Telecommunications and Traffic Depart- the Office of the Deputy Manager. 1 ments into one organization headed by Ln a single executive. Operational improvement of the terminal Recommendation on administrative Assist in the revision of work at Valle de M6xico organization, control and informa- methods in yards and draw tion system, operating procedure and attention to the need for the grouping and design of facilities in COMPA system. order to increase the efficiency of operations at the Valle de M9xico terminal Equipment control center Introduce a supervision and control Establishment of the Equipment mechanism for the distribution and Control Center. maintenance of available traction equipment power. Sidings program Recommendations for construction and Partial utilization in integrated expansion of new sidings and improve- investment programs for sidings. ment of those not providing adequate service. Closing of stations Analysis of workloads at system Some stations closed. stations in order to determine their cost-effectiveness. Introduction of PICL system at Valle de Establishment of a mechanized car Introduction of the Permanent M6xico information and control system, making Inventory of Car Location (PICL), car management more efficient. forerunner of the present (CAT) System at Valle de M6xico. Performance of direct trains Analysis of performance of fast trains Changes in some factors hindering on line B to improve operations. efficient management of direct trains. Multiple weighing of cars Recommendations to avoid weighing of Substantial elimination of repeated cars en route after weighing at the weighing of cars. origin. Unit trains in Pefia Colorada Analysis of unit traffic and integration Establishment of service. of corresponding service. Regional personnel training program Training of regional managers and Training in San Francisco, regional assistant managers in order California, USA. to help them adapt to the new organi- zation. Analysis of locomotive crankshaft Examine causes of excessive crank- Useful in crankshaft rehabilitation. problems shaft breakdown and make recommenda- tions to improve their maintenance and determine whether crankshaft can be repaired and used in subsequent repairs. Freight car maintenance Analysis of techniques and procedures Partial implementation of to improve the quantity and quality suggested organization, systems of freight car repairs in shops at and procedural changes. Aguascalientes and Matlas Romero. Car repair and retirement program Formulation of a program to use staff Preparation of a car repair and shops productively in accordance and retirement program. with their capacity. Establishment of the repair quality control Evaluate the possibility of having a Draw attention to the need for a section of the Traction Equipment Office quality control section for repairs. quality control section. Workshop improvement Improvement of locomotive and traction Basis for guidelines on concentrat- equipment maintenance, including ing scheduled maintenance in four regular maintenance and expanded capa- major shops for axles and bearings. city at San Luis Potosi, Aguascallientes and Matias Romero. Increase in wheel assembly capacity at Aguascalientes and Matias Romero. Equipment and tools budget Consolidation of investment budget for Partially taken into account. equipment and tools for 1975 and 1976. Shop machinery investment program for shops Evaluate investment program for 1974 Partially taken into considera- and equipment and 1975 in accordance with maintenance tion in investment programs. recommendations. Telecommunications system Definition of the UHF and VHF radio Taken into account in the decision system. to implement it. CTC investment program Determination of the possibility of Inclusion of the Irapuato- including the following sections in Guadalajara section in the the investment plan: 1975-1980 investment plan. Irapuato-Guadalajara Oriental-Veracruz Teotihuacan-Oriental for CTC installation. Track Office investment plan Development and evaluation of an Preparation of a program for investment plan for the Track and the current investment program. Structures Office, for track renew- al, wood and concrete sleepers, ballast, bridges and track equipment purchases. Car registration and control, statistics, System to improve car registration and Implementation of the per diem per diem and mileage system data processing for car movement, loca- and mileage system in the tion, per diem and pertinent statistics. Accounting and Equipment office. Analysis, development and implementation Determine the feasibility, development Establishment of the SCINCO Y of an information and operations control cost and implementation of a computer- COMPA system. system ized printing and control system. Car distribution system Feasibility study of various car distri- Soon to be implemented. bution alternatives. Warehousing and procurement Review existing procedures and assigned Not implemented. responsibilities in order to double control of inventory levels and ensure rapid availability of spare parts for equipment maintenance. Cost determination system Analysis of Nacionales de M6xico account- Implementation of most methods ing and preparation of various methods recommended and their use in the for determining variable costs. calculation of rates. .XICAN NATIONAL RAILWAYS General Organizational Chart Board of Directors General Managers Office of the Deputy Manager Comptroller s Finance Office Managerr,ff Office Of ice. 1 LiL - 64 - CONSULTANT MAN-HOURS OF ADVISORY ASSISTANCE UNDER LOAN 825-ME CONSULTANT MAN - HOURS J. W. Albertson 556.5 W. J. Hartwick 110.0 R. K. Mc Afee 3,513.0 J. W. Mc Laughlin 2,942.0 E. I. Norman 1,660.0 H. T. Parigini 84.0 E. G. Pattillo 1,443.0 T.' H. Sjostrand 3,133.0 L. R. Smith 525.0 T. K. Strong 478.5 J. W. Germany 88.0 R. D. Spence 40.0 A. W. Keith 40.0 W. V. Williamson 138.0 W. R. Deckert 120.0 L. R. Bishop 371.0 R. D. Bredenberg 1,234.0 B. G. Gallacher 136.0 M. C. Blanton 20.0 - 65 - 2. CON S UML T A AN - HOURS T. F. ra Uer 120.0 W. J. Jones 225.0 R. W. Wolfe 169.0 A. J. Seelenfreund 220.0 B. H. Powell 1.0 C. Curry 25.0 B. G. Botello 168,0 T o t a 1 17,560.0 ECONOMIC RATES OF RETURN USED IN EVALUATION COMP 0 NENT Investment % of total Rate of in Mex$ millions Investment Return Bridges and track renewal 683.8 23% 20.61 Realignments 17. 3 1% 16. 3% 21,.7 1%0 5 0. 8% Sidings 205w Wood sleepers 60.5 2 0 18.5' Track equipment 15.9 1 19.6 0 Ballast gondolas Locomotive, cars & workshop equipment 1,241.6 41% 18.3% Axles and bearings 21.9% 13.3% Telecommunications 381.7 12% 2 0.0% Subtotal 522.8 84% 20.4% Other investments (excluded from 481.6 16% analysis) TOTAL 3,004.4 100% ______________________________ ________TO T A L __________- ____________ MEXICAN NATIONAL RAILWAYS LOAN 825-ME ESTIMATES RATE OF RETURN USED IN THE EVALUATION COMP 0 NENTS % of total Investment Rate of Return Bridges, track renewal, wooden sleepers, track equipment, ballast gondolas, realignments and sidings. 29 Locomotives and 1/3 workshop 18 170 Freight cars, 2/3 workshop, equipment and axles and bearings 28 21% Telecommunications 8 207 T o t a 1 83 17.6% UP/Septlembre, 1978. - 68 - Cars: Amortization and interest for a car with average cost of Mex$800,000/ unit and 8,760 hours/yr: 800,000 X 0.1213 / 8,760 = Mex$11.07/car-hr (4) 37.8 cars/train X 11.07 = Mex$418/train-hr Crew: The total wage cost for freight train crews in 1977 was Mex$174,790,000 for 982,308 freight train-hr: 174,790,000 X 1.19 / 982,308 = Mex$212/train-hr (5) In sum, train-hr cost, considering only the above concepts, is: 954 + 418 + 212 = Mex$1,584/train-hr = Mex$1,600/train-hr. The working hypothesis was that operating speeds would have increased 1% annually up to 18 kph, without the renewal works under evaluation. The benefits from bridges located on lines that were also rehabilitated with new track were not taken into account in order to avoid duplication, although the investments involved were added to total capital expenditure. The savings realized from works on bridges located on lines where there was no rehabilitation were calculated on the basis of elimination of safety instructions due to the low capacity of the structures. It was assumed that each safety instruction meant that a train had to decrease its speed from 25 kph to 10 kph, equivalent to a loss of 84 seconds per train in reducing speed and then regaining it. The savings attributable to each bridge whose capacity was increased or temporary structure replaced by a permanent one is: Mex$1,600/train-hr X 0.023 hr = Mex$36.8/train-hr Total benefits for 1978 were Mex$45.3 million, considering only works on sections where there were no rehabilitation works. The rate of return on the investment of Mex$683.8 million, i.e. Mex$525.8 million for track renewal and Mex$158 million for bridges, was 20.6%. (1) 2,334,460 hp/1,069 locomotives = 2,200 hp/locomotive. (2) 94,900 km/yr at 25 kmh. (3) Capital recovery factor of 12% over 20 years. (4) Capital recovery factor of 12% over 40 years. Project Completion Report Loan 825-ME SUMMARY OF TRACK RENEWAL SPEED (kmn/hr). Tanrffc Benefits in increase in DIVISION LINE SPE.Train Traffic 1978 (Mex$ Traffice 1973 1976 1977 millions) G :ad.iLi'ara 1 20.5 28.9 6,767 14.1 6.4 Mt:lova RD 22.5 25.4 2,320 3.1 9.2 MonterrLey B 26.9 30.9 2,797 6.8 4.7 Queretaro B 15.8 24.3 3,777 12.6 6.9 CArdeias L 24.7 27.4 937 0.4 4.7 Jalapa V 11.5 24.0 5,393 51.6 6.0 Queritaro A 19.9 26.0 6,613 11.1 6.9 PENJAMO - LA PIEDAD (73.2 km.) Savings in To (hours) Tf (hours) No. of train-9 Sins Year Vo Vf 4t 6.4 o Mi 1973 20.5 28.9 3.57 2.53 1.04 5,280 8.8 1974 20.3 28.9 3.61 2.53 1.08 5,618 9.7 20.1 28.9 3.64 2.53 1.11 5, 977 10.6 19.9 28.9 3.68 2.53 1.15 6,300 11.7 19.7 28.9 3.72 2.53 1.19 6,737 12.9 1978 19.5 28.9 3.75 2.53 1.22 7 200 14.1 97 19.3 28.9 3.79 2.53 1.26 7 61 15.4 (1 19.1 28.9 3.83 2.53 1.30 8, 151 17.0 18.9 28.9 3.87 2.53 1.34 8,673 18.6 18.7 28.9 3.91 2.53 1.38 9,228 20.4 3 18.5 28.9 3.96 2.53 1.43 9, {3, 22.5 18.4 28.9 3.98 2.53 1.45 10,447 24.2 18.2 28.9 4.02 2.53 1.49 11,116 26.5 18.0 28.9 4.07 2.53 1.54 11,827 29.1 18.0 28.9 4.07 2.53 1.54 12,583 31.0 18.0 28.9 4.07 2.53 1.54 13, 389 33.0 18.0 28.9 4.07 2.53 1.54 14, 24 35.1 9 18.0 28.9 4.07 2.53 1.54 15, 157 37.3 1.8.0 23.9 4.07 2.53 1.54 16,128 39.7 13.0 280.9 4.07 2.53 1.54 17, 160 42.3 18.0 28.9 4.07 2.53 1.54 18, 259 45.0 18.0 28.9 4.07 2.53 1.54 19,427 47.9 5 18.0 28.9 4.07 2.53 1.54 20, 670 50.9 CIUDAD FRONTERA - EL ORO (104.7 km.) Year | To (hours) Tf (hours) No. of train mins Vo Vf 4t 9.2 m of Mer8 173 22.5 25.4 4.65 4.12 0.53 1, 632 1.4 1374 22.3 25.4 4.70 4.12 0.58 1, 722 1.7 1975 22.1 25.4 4.74 4.12 0.G2 1,946 1.9 17G 21.8. 25.4 4.80 4.12 0.68 2, 125 2.3 1977 21. G 25.4 4.85 4.12 0.73 2,320 2.7 1978 21.4 25.4 4.89 4.12 0.77 2,534 3.1 197 21.2 25.4 4.94 4.12 0.82 2,77 3.G ,0 21.0 25.4 4.99 4.12 0.87 3, 022 4.2 1''u1 20.8 25.4 5.03 4.12 0.91 3,309 4.8 192 20.6 25.4 5.08 4.12 0.96 3,603 5.5 3 20.3 25.4 5.16 4.12 1.04 3, 9:35 6,5 1 20.1 25.4 5.21 4.12 1.09 4, 2J7 7.5 19.9 25.4 5.26 4.12 1.14 4,692 8.6 1 <0 19.7 25.4 5.31 4.12 i.19 , 1 9.8 1 7 19.5 25.4 5.37 4.12 1.25 5,595 11.2 19.4 25.4 5.40 4.12 1.28 6, 110 12.5 1 19.2 25.4 5.45 4.12 1.33 6,672 14,2 19.0 25.4 5.51 4.12 1.39 7, 20 16.2 1 1 1 . 8 25.4 5.57 4.12 1.45 7, 957 18.5 18.6 25.4 5.63 4.12 1.51 8, 689 21,0 133 18.4 25.4 5.69 4.12 1.57 9, 488 8 18.2 25.4 5.75 4.12 1.63 10,3G1 27.0 1 18.0 25.4 5.82 4.12 1.70 11,314 30.8 i____________________ ___________________ ___________________ ___________________.____________________i_________________ ____________________ ___________________ MONTERREY - NUEVO LAREDO (217.6 km.) .. .-.-. .. -.- ..- ....m-. Savings i f No. oftrains Year Vo Vf To (hours) Tf (hours) Nt4.7 millions Vo Vfid t . 7o f -Meux 1373 26.9 30.9 8.09 7.04 1.05 2,328 3.9 17 26.6 30.9 8.18 7.04 1.14 2,437 4.4 26.4 30.9 8.24 7.04 1.20 2,552 4.9 I 26.1 30.9 8.34 7.04 1.30 2, 672 5.6 9 25.8 30.9 8.43 7.04 1.39 2, 797 6.2 25.6 30.9 8.50 7.04 1.40 2, 929 6.8 I37925.3 30.9 8.60 7.04 1.56 3,067 7.7 25.1 30.9 8.67 7.04 1.63 3, 211 8.4 24.8 30.9 8.77 7.04 1.73 3, 362 9.3 24.6 30.9 8.85 7.04 1.81 3, 520 10.2 1 3 24.3 30.9 8.95 7.04 1.91 3,685 11.3 24.1 30.9 9.03 7.04 1.99 3,858 12.3 23.8 30.9 9.14 7.04 2.10 4, 040 13.6 23.6 30.9 9.22 7.04 2.18 4,230 14.8 1 23.4 30.9 9.30 7.04 2.26 4,428 16.0 23.1 30.9 9.42 7.04 2.38 4, 636 17.7 i 22.9 30.9 9.50 7.04 2.40 4,854 19.1 j 22.7 30.9 9.59 7.04 2.55 5, 0,2 20.7 1 22.4 30.9 9.71 . 7.04 2.67 5,321 22.7 22.2 30.9 9.80 7.04 .2.76 5,571 24.6 22.0 30.9 9.39 7.04 2.85 5,833, 26.6 1 '21.8 30.9 9.98 7.04 2.94 6, 107 28.7 1 21.6 30.9 . 10.07 7.04 3.03 6,395 31.0 HUEHUETOCA - ARAGON (88.4 km.) Savings in Year To (hours) Tf (hours) I t 6 9t millions of Mex$ 1973 15.8 24.3 5.59 3.64 1.95 2, 892 9.0 1974 15.8 24.3 5.59 3.64 1.95 3, 092 9.6 1975 15.8 24.3 5.59 3.64 1.95 3, 03 10. 3 15.8 24.3 5.59 3.64 1.95 3,533 11.0 15.8 24.3 5.59 3.64 1.95 3, ?7 11.8 15.8 24.3 5.59 3.64 1.95 4, 037 i 2.6 -' 3 15.8 24.3 5.59 3.64 1.95 4, 316f 13.5 J 0 15.8 24.3 5.59 3.64 1.95 4, 61- 14.4 15.8 24.3 5.59 3.64 1.95 4, 93 2 15.4 2 15.8 24.3 5.59 3.64 1.95 5, 272 1.4 103 15.8 24.3 5.59 3.64 1.95 5, G0, 17.6 15.8 24.3 5.59 3.64 1.95 6, 025 18.8 1 515.8 24.3 5.59 3.64 1.95 6,41 23.1 15.8 24.3 5.59 3.64 1.95 6,8"5 21.5 1 7 15.8 24.3 5.59 3.64 1.95 7, 230 23.0 15.8 24.3 5.59 3.64 1.95 7, 86 . 5 1 15.8 24.3 5.59 3.64 1.95 8, 411 26.2 15.8 24.3 5.59 3.64 1.95 8, 9.' 28.1 1115.8 24.3 5.59 3.64 1.95 9,,12 30.0 15.3 24. 3 5.59 3.64 1.95 10, 275 32.1 15.8 24.3 5.59 3.64 1.95 10, 984 34.3 15.8 24.3 5.59 3.64 1.95 11, 742 36.6 15.8 24.3 5.59 3.64 1.95 12,552 39.2 CHICALOTE - SAN LUIS POTOSI (42.2 km.) savings I I INo. of trains Year To (hours) Tf (hours) o tr4.7 millions Vo Vf 1973 24.7 27.4 1.71 1.54 0.17 780 0.2 1974 24.5 27.4 1.72 1.54 0,18 817 0.2 1975 24.2 27.4 1.74 1.54 0.20 855 0.3 24.0 27.4 1.76 1.54 0.22 895 0.3 7 23.7 27.4 1.78 1.54 0.24 937 0.4 17 23.5 27.4 1.80 1.54 0.20 981 0.4 23.3 27.4 1.81 1.54 0.27 1,027 0.4 1 i 23.0 27.4 1.83 1.54 0.29 1,076 0.5 1 93122.8 27.4 1.85 1.54 0.31 1, 120 0.G 1 2 22.6 27.4 1.87 1.54 0.33 1,179 0.6 19.3 22.3 27.4 1.89 1.54 0.35 1, 235 0.7 19 4 22.1 27.4 1.91 1.54 0.37 1, 293 0.8 1 5 21.9 27.4 1.93 1.54 0.39 1,353 0.8 1 21.7 27.4 1.94 1.54 0.40 1,417 0.9 21.5 27.4 1.96 1.54 0.42 1, 48 1.0 21.2 27.4 1.99 1.54 q.45 1,553 1.1 21.0 27.4 2.01 1.54 0.47 1,626 1.2 51990 20.8 27.4 2.03 1.54 0.49 1,703 1.3 20.6 27.4 2.05 1.54 0.51 1,783 1.5 20.4 27.4 2.07 1.54 0.53 1,867 1.6 20.2 27.4 2.09 1.54 0.55 1,954 1.7 20.0 27.4 2.11 1.54 0.57 2,046 1.9 9 3 19.8 27.4 2.13. 1.54 0,59 2,143 2.0 JALAPA - VERACRUZ (124.7 km.) No_- of trains Savings in Year Vo Vf To (hours) Tf (hours) d t 6.0 millions of Meo6 1973 11.5 24.0 10.84 5.20 5.64 4,272 38.6 1974 11.5 24.0 10.84 5.20 5.64 4,528 40.9 1975 11.5 24.0 10.84 5.20 5.64 4,800 43.3 1975 11.5 24.0 10.84 5.20 5.64 5,088 45.9 1977 11.5 24.0 10.84 5.20 5.64 5,393 48.7 197. 11.5 24.0 10.84 5.20 5.64 5,717 51.6 1979 11.5 24.0 10.84 5.20 5.64 6,060 54.7 19 11.5 24.0 10.84 5.20 5.64 6,424 58.0 193: 11.5 24.0 10.84 5.20 5.64 6,800 61.4 182 11.5 24.0 10.84 5.20 5.64 7,217 65.1 1983 11.5 24.0 10.84 5.20 5.64 7,651 69.0 184 11.5 24.0 10.84 5.20 5.64 8,110 73.2 1935 11.5 24.0 10.84 5.20 5.64 8,596 77.6 19j6 11.5 24.0 10.84 5.20 5.64 9,112 82.2 11.5 24.0 10.84 5.20 5.64 9,659 87.2 1908 I 11.5 24.0 10.84 5.20 5.64 10,238 92.4 11.5 24.0 10.84 5.20 5.64 10,852 97.9 11.5 24.0 10.84 5.20 5.64 11,504 103.8 1191 11.5 24.0 10.84 5.20 5.64 12,194 110.0 19211.5 24.0 10.84 5.20 5.64 12,925 116.6 1903 11.5 24.0 10.84 5.20 5.64 13,701 123.6 1191 11.5 24.0 10.84 5.20 5.64 14,523 131.1 1-95 11.5 24.0 10.84 5.20 5.64 15,394 138.9 TLALTEPOXCO - ARAGON (68.3 km.) JNo. of traiits1avgi Year Vf To (hours) Tf (hours) 4 t 6.9 % Millions vo nf MPTA 19':3 19.9 26.0 3.43 2.63 0.80 5, 064 6.5 19-4 19.7 26.0 3.47 2.63 0.84 s, 413 7.3 1975 19.5 26.0 3.50 2.63 0.87 5,787 8.4 19':6 19.3 26.0 3.54 2.63 0.91 6,186 9.0 1977 19.1 2C.0 3.58 2.63 0.95 6,613 10.1 18.9 26.0 3.61 2.63 0.98 7,069 11.1 1979 18.7 26.0 3.65 2.63 1.02 7,557 12.3 1960 18.5 26.0 3.69 2.63 1.06 8,079 13.7 19e 1 18.4 26.0 3.71 2.63 1.08 8,636 14.9 1 18.2 26.0 3.75 2.63 1.12 9,231 16,5 19 3 18.0 26.0 2.79 2.63 1,16 9,868 18.3 1984 18.0 26.0 3.79 2.63 1.16 10 550 19.6 1965 18.0 26.0 3.79 2.63 1.16 1 ,278 20.9 19£6 18.0 26.0 3.79 2.63 1,16 12,056 22.4 1927 18.0 26.0 3.79 2.63 1.16 12, 888 23.9 1988 1r.0 2G.0 3.79 2.63 1.16 ý3,777 25.6 1989 18.0 26.0 3.79 2.63 1.16 14,728 27.3 1950 18.0 26.0 3.79 2.63 1.16 15, 744 29.2 1991 18.0 26.0 3.79 2.63 1.16 16,830 31.2 1992 18.0 26.0 3.79 2.63 1.16 17,992 33.4 1993 18.0 26.0 3.79 2.63 1.16 19,233 35.9 1993 18.0 26.0 3.79 2.63 1.16 20,530 38.2 1995 18.0 26.0 3.79 2.63 1.16 21,978 40.8 - 77 - ECONOMIC EVALUATION ON BRIDGES AND STRUCTURES CAPITAL INVESTMENT AND NO. OF BRIDGES AND CULVERT WORKS 1972-77 -N... o ý--o--Benhefits in~liaWcýe~a¯sé in Line Section - works millions of,.traffic transfer ....e ..s---Mex$ ---density(% Ie Chen.] . 2 0..te( t 1o . I ~ r,o <0< . Te.U >8i> 1 3,063 L3.4O. Dø se (43 ) - o. (1aesit1) ' ,361 1_1.' ( a, 3 .2.. 0.0..4" - T,I8>0>-l44 . aeo(0) - ee Ie ( 100 4.,3.. l. <e0>t 444) . 'eet.'2 JI I 8,o.3 <85.8 1.1 1.. Iut Iwe a ,'2 .'W'o , 04 1.3:4 10,430.0 8 rr ..esk ,i. In:1 31.4 084 Br1'me V8eteri ( ,12)0o'g ( I _0 - DB De .egeo (3) .' .;?,...-e (1I1) I l3 30. 4. 1 c, PJta()-7aoualD ,e4 1S 4 Ie. t1. 3 V B(seerweg <0) Ma tat:.or. (330) 34 lI, 404 3 8.1 34 ,34. o C.,.i.'M (0) - Medtaa. A goua (<Kw) 37! 4,820 IyO. 4.8 acra31 4,650.T 80•Trars(D Iirr ,.eC9) ,4 13.0 . swaan: 1510,.1. IR . fle . - . (0 a r : 35 . r,32o (.3.4 6.0 Oa.~al a 1 - Vn .- a ac19 ) 1 ,130 142. '0.4 31 *6 h.0 Bum: 1 1.23,.0 1, a-CL.~ () - 0 rt.<. 14 (I" N 1 , i1.04.1 ve r.''.i (>121 - C-r. (1 . 1 <,8 L i sw2a 1 3,2rn.0 af Pom.. (0),<, )- re l * 2,104 211 4.? (0) '~--- e n..~: 8 14.1 ac 0.a,r,2.r-a <0). - 0or.' <2) I 1,25.8 800. 4.0 SomI 100.1 RD C4. fr-ertl (0<.- 2.,.alan <(288 - .82 - 8.8 I 81:.eo(C. Teetthu...rI, 45> 11 8,813 4,035. 4.1 T'Doesa,05. not- ma,. 45) I 4,24 1,3 2.0 l.3 th .epl aes)t. croj. t in3< o t 3aoi 4.1 ums 3 B, 401.4 V 8an .Nan Teatthua0i <C1- Vers- a tus <( t 4,2313 M e 1.8 "to.as: 31 - 4,0:0g 8* 8..a L.re..e (0) . 0r, ,3 <(81 1?3,34 1>0. 4.1 aai4 122. VC La Arc.. (01 - CI..sj (>214 1181 . 0%:4 g4. 0 I C..t.aoato. (og - si.e,n A r-.e LII 0 0,10 840.8 4.1 . (2~3) 4 l,v 23 . 4.? . 11na42 1 .8 Total Worksf , *Does flot include bridges located in < 0. the replacement project, in order to avoid duplication. - 78 - (5) Including benefits. PU/September 1978 REALIGNMENTS In order to evaluate the benefits of capital expenditure for realignment, the minimum requirements for traction equipment to operate trains in districts with gentler slopes were considered. Patti-Yurecuaro On this section the slope was changed from 1.1% to 0.9% in the southbound direction, which currently has traffic of 7.3 million gross tons, and 1.1% to 0.5% in the northbound direction, which has traffic of 5.6 million gross tons per year. The distance was reduced from 21.3 km to 20.3 km. Hauling capacity for an 1800-hp locomotive at 30 km/hr increased from 900 tons to 1,100 t south- bound and 1,800 t northbound. Savings were calculated on the basis of the cost per locomotive/km. 1,800 hp X Mex$5,500/hp X 0.1338/3,800 hr X 30 kph = Mex$11.6/loc-kn Accordingly, the savings attributable to the project are: Southbound: goo X 21.3 - ,1o6 X 2073] 7,300,000 = Mex$441,363 Northbound: 11.6 X 21.3 - 11.6 X 5,600,000 = Mex$80h,783 900 1,800 Total Mex$441,363 + Mex$804,783 = Mex$1,246,146 Agua Nueva-Encantada This 10.4-km realignment will become operational in 1978, reducing 43.3 km in the Encantada district from a slope of 0.5 to 0.0%, which means that an 1800-hp locomotive can haul a total of 6,000 tons instead of 1,800. Traffic benefits only in the northbound direction (5.5 million gross tons). El 1 - Mex$11.6 X 43.3 X 5,500,000 = Mex$1,074,323 DEPRECIATION AND INTEREST ON LOCOMOTIVES AS A FUNCTION OF SPEED AND SLOPE (Centavo/GTK) S L 0 P E ( % ) S P E E D 0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4. 20 0.18 0. 54 1. 12 1. 63 2. 17 2. 75 3.37 4.03 4.73 30 0.19 0,65 1.14 1.68 2.27 2.91 3.64 4.43 5.32 40 0.21 0,68 1.20 1.79 2.46 3.22 4.10 5.15 5.40 50 0.24 0.71 1.25 1.89 2.64 3.53 4.64 6.00 7.73 00 0.27 0. 78 1. 39 2. 13 3. 05 4. 26 5. 86 8.06 1.1. 37 0.31 0.85 1.52 2.38 3.53 5.13 7.53 11.30 19.12 *For an 1800hp locomotive, Mex$348/loc. hr. for depreciation and interest. 1578. - 80 - PROGRAMMING UNIT TONNAGE HAULED AT MAXIMUM MOTIVE POWER SPEEDWAVES ON KPH 10,000- T 6,000 0 7,000- N 6,000 - S 5,000- 4,000 3,000- 2,000 - 20 30 1,000 - 50 0 * 1000hp locomotive Slope in % - 81 - Work Benefits from Realignments (In millions of Mex$) Patti - Agua Nueva - Iturbe -T o t a 1 Yur6cuaro Encantada La Luz 1972 1973 1974 - - - - 1975 1.0 - 0.5 1.5 1976 1.1 - 0.5 1.6 1977 1.1 - 0.6 1.7 1978 1.2 1.1 0.6 2.9 1979 1.5 1.3 0.6 3.4 1980 1.6 1.4 0.6 3.6 1981 1.7 1.5 0.7 3.9 1982 1.8 1.5 0.7 4.0 1983 2.0 1.6 0.8 4.4 1984 2.1 1.7 0.9 4.7 1985 2.2 1.8 0.9 4.9 1986 2.4 1.9 1.0 5.3 1987 2.5 2.0 1.1 5.6 i988 2.7 2.1 1.1 5.9 1989 2.9 2.2 1.2 6.3 1990 3.1 2.3 1.3 6.7 1991 3.3 2.5 1.4 7.2 1992 3.5 2.6 1.5 7.6 1993 3.8 2.8 1.7 8.3 1994 4.0 2.9 1.8 8.7 1995 4.3 3.1 1.9 9.3 1996 4.6 3.2 2.0 9.8 1997 4.9 3.4 2.2 10.5 1998 5.2 3.6 2.4 11.2 - 82 - Iturbe-La Luz The slope was reduced in both directions from 1.5% to 0.6% on a section of 8.2 km, enabling an 1,800-hp locomotive to haul 1,550 tons instead of 200 tons. Total traffic on the line is 7.6 million gross tons at present. 1 1 11.6 X 8.2 X 7,600,000 = Mex$566,337 700 1,550 The total savings attributable to the three projects are: Mex$1,246,146 + 1,074,323 + 566,337 = Mex$2,886,806 On the section between Patti and Yurecuaro traffic will increase by 32% southbound and 13% northbound in the coming year, with the entry into service of the second stage of Pefia Colorada. In subsequent years it will increase 6.8% annually in both directions. Between Agua Nueva and Encantada, for the same reason as indicated above, there will be a 22% increase in 1979 and 5.5% annual increases in subsequent years. Lastly, on the section between Iturbe and La Luz there will be a constant annual growth of 7.5%. Capital investment was Mex$20.9 million, with Mex$17.3 million showing a rate of return of 16.3%. PU/September 1978 SIDINGS The economic evaluation of the Mex$21.7 million invested in sidings con- sidered the benefits in terms of crew savings, because longer trains could be run; i.e., investments at a given siding permit the handling of trains of greater length and tonnage on the section served. We adopted this hypothesis for purposes of evaluation although we realize that in order to obtain the benefits mentioned, the total investment in a rail district must be taken into account. Savings were calculated on the basis of crew costs. The tonnage hauled by trains with a length equivalent to the original capacity of the sidings was considered and then compared to the figures for 90-car trains using the improved and enlarged sidings. The annex gives a breakdown of works, showing current and original capa- city in terms of number of cars, length of works, savings in crew costs, 1977 traffic in thousands of net tons, total benefits in the first year and the annual rate of traffic increase. The rate of return in this category was 30.8%. PU/September 1978 - 83 - EXPANSION AND CONSTRUCTION OF SIDING ECONOMIC EVALUATION 1973-1976 General '77 Traffic Year I Car Capacity Length of Savings in Millions Renefit Annual DESCRIPTION Previous Current Works in Meters Mex$/ton of Net Tons in Mex$ Growth Rate DIVISION CARDENAS El Gato, S.L.P. (L-339) 40 120 1,052 0.0301 2.2 66,220 4.7 Chila, Ver. (L-639) 41 100 838 0.0139 2.2 30,580 4.7 Celia, S.L.P. (L-584) 38 100 980 0.0470 2.2 103,400 4.7 TOTAL 2,870 DIVISION CENTRO Lagos de Moreno, Jal. (A-475) 64 120 940 0.0172 2.4 41,280 4.9 Los Salas, Jal. (A-496) 42 120 1,921 0.0226 2.4 54,240 4.9 Adames, Ags. (A-654) 39 120 1,315 0.0422 2.4 101,280 5.4 Transcoso, Zac. (A-681) 40 120 1.300 0.0201 2.4 48,240 5.4 TOTAL 5,476 DIVISION GOLFO Chipinqie, N.L. (M-548) 42 120 970 0.0332 1.6 53,120 4.7 Rosa, Tamps. (M-219) 30 90 700 0.0640 1.6 102,400 4.7 Caballeros, Tamps. (M-248) 33 90 855 0.0273 1.6 43,680 4.7 TOTAL 2,525 DIVISION JALAPA Banderilla, Ver. (V-331) 42 101 1,260 0.0248 4.3 106,640 7.3 Chavarrillo, Ver. (V-365) 61 100 805 0.0194 4.3 83,420 6.3 Palmar, Ver. (V-381) 44 60 880 0.0150 4.3 64,500 6.3 Los Idolos, Ver. (V-407) 42 100 21 0.0317 4.3 136,310 6.3 TOTAL 5,105 DIVIS!ON MEXICANO Maltrata, Ver. (S-272) 27 60 1,000 0.0339 2.9 98,310 4.7 Encinar, Ver. (S-282) 22 64 670 0.0244 2.9 70,760 4.7 TOTAL 1,670 DIVISION GUADALAJARA Sayula, Jal. (1-395) 31 120 2,160 0.0553 5.0 276,500 10.0 Cd. Guzman, Jal. (1-423) 28 120 2,360 0.0890 5.0 445,000 10.0 (Via 1) Cd. Guzman, Jal. (1-423) 28 120 2,260 0.0890 5.0 445,000 10.0 (Via 2) Balcon, Col. (1-524) (Via 1) 29 120 1,900 0.0435 5.0 217,500 9.8 Balcon, Col. (1-524) (Via 2) 29 116 1,890 0.0435 5.0 217,500 9.8 Tuxpan, Jal. (1-451) 27 120 2,160 0.0774 5.0 387,000 10.0 TOTAL 12,730 DIVISION MONTERREY Salinas Victoria, N.L. (B-1055) 46 120 2,300 0.0459 2.5 114,750 4.7 Ramos Arizpe, Coah. (8-930) 30 120 1,600 0.0211 4.9 103,390 4.7 Rinconada, N.L. (B-965) 46 120 1,300 0.1742 4.9 853,580 4.7 Leal, N.L. (B-1042) 46 120 1,200 0.2508 2.5 627,000 4.7 Morales, N.L. (B-1064) 46 120 1,200 0.2402 2.5 600,500 4.7 Villa Aldama, N.L. (8-1116) 44 120 1,125 0.0267 2.5 66,750 4.7 Golondrinas, N.L. (B-1142) 46 120 1,110 0.0484 2.5 121,000 4.7 Huizachito, N.L. (B-1245) 46 120 1,125 0.0578 2.5 144,500 4.7 Sanchez, Tamps. (B-1274) 46 120 1 0.0332 2.5 83,000 4.7 TOTAL 12,085 DIVISION PUEBLA Jaltepec, Mex. (V-89) 42 100 724 0.0109 4.3 46,870 7.5 Iturbe, Tlax. (V-117) 60 100 480 0.0104 4.3 44,720 7.5 Pavon, Tlax. (V-162) 60 100 478 0.0095 4.3 40,850 7.5 Tecoac, Tlax. (V-182) 60 100 478 0.0090 4.3 38,700 7.5 TOTAL 2,160 DIVISION SAN DUIS El Salado, S.L.P. (B-770) 46 179 2,000 0.1148 6.6 757,680 5.4 TOTAL 2,000 - 84 - WOODEN SLEEPERS The 1972-73 project called for the laying of approximately 4 million wooden sleepers at a cost of Mex$220 million in order to partially overcome the backlog in track maintenance. Between 1975 and 1977, in addition to materials for normal upkeep, 927,500 wooden sleepers were laid at a cost of Mex$79.3 million. In 1974, according to information provided by the Track Department, there were approximately 6 million wooden sleepers in poor repair, which means that an average of 23% of the total were in this condition, on 14,200 km of main track, with 1,000 concrete sleepers and 2,000 wooden sleepers per km. In other words, on every km there were 460 worn-out sleepers, of which only 110 represented normal upkeep (18 years useful life), i.e., an average of 350 sleepers per km had to be replaced. The 927,500 wooden sleepers that were laid, in addition to normal upkeep between 1975 and 1977, made it possible to bring maintenance up to date on 2,650 km. Since the most important benefit attributable to the elimination of the maintenance backlog is the lengthening of the useful life of the track from an average of 25 years to at least 40 years, the annual benefit attributable to these works is: 2,650 km X 905/km* X Mex$7,900/t (1/25 - 2/4o) = Mex$28,262,250 The annual rate of return is 24.5%. TRACK MAINTENANCE EQUIPMENT In the 1972-73 investment program, N de M had planned to purchase track equipment costing Mex$28 million. That figure was exceeded between 1972 and 1975 with the purchase of the following equipment at a cost of Mex$60.5 million: 1972 1973 1974 1975 Pile crane 1 - 4 1 Wrecking cranes 2 - - Burro crane 1 - 2 - Rail cranes 1 2 - - Ballast regulators 2 - 2 Self-propelled cranes - 1 - Track grader - 1 1 - 200-t wrecking crane - 1 - - *Weight corresponding to the system's average track gauge. - 85 - 1972 1973 1974 1975 Dredge - 1 - - Cribber - 1 - - Rotary compressor - - - 2 Track aligner - - - 3 Ballast multi-tamper - - 3 7 Dredge crane - - 2 - Excavator - - 1 - Caterpillar tractors - - 3 - These items were purchased mainly to replace worn-out equipment. Our experience shows that heavy track equipment which is nearing the end of its useful life has very low availability and that its maintenance and repair costs increase substantially. In a sample of 42 pieces of equipment, including tractors, pile cranes, excavators, ballast regulators, track aligners, ballast multi-tampers, burro cranes and cribbers, which all should have been taken out of service, showed in the last three years they were in the shop for an average of four out of every 12 months. One of the benefits of the new equipment is the use of manpower which would otherwise have been immobilized for at least four months each year. This would correspond to 48 operators, 48 assistants and 12 cable layers, at a cost of: 4 (48 X Mex$6,400/mo. + 48 X Mex$5,600/mo. + 12 X Mex$4,800 = Mex$2,534,400 (1) It has been estimated that to do the work that could not be carried out during the four months when the equipment was immobilized, at least 960 workers would have had to be engaged during that period (20 per unit); nevertheless, as in the preparation of the project, it was assumed that only 50% of that labor could not have been obtained from the existing manning table. 4 X 960 X 0.50 X Mex$4,800/mo. = Mex$9,216,000 (2) In sum, the annual benefits attributable to this part of the project are the sum of (1) and (2). Mex$2,534,oo + Mex$9,216,000 = Mex$11,750,400 The annual rate of return is 18.5%. BALLAST HOPPER CARS The 1972-73 investment program included the purchase of 40 ballast hopper cars for maintenance purposes, but it was not until 1975 that 125 were purchased at a cost of Mex$49.8 million. For the analysis only 40 hopper cars valued at Mex$15.9 million were considered. For the economic evaluation of this purchase the number of cubic meters of ballast that could be transported with the equipment was calculated, based on a capacity of 50 tons per unit and a turnaround time of 12 days. - 86 - 40 X 50 ton X 365/12 = 60,800 ton/yr. 60,800 ton/21 ton/m3 = 28,950 m 3/yr. The alternative cost of transporting thi amount of ballast with ordinary gondolas and manual transfer, at the rate of 8 m /man-day is as follows: 28,950/8 X Mex$160/day = Mex$579,000 (1) Further, ordinary gondolas were considered to cost a minimum of US$8 per day, equivalent to the daily rate and mileage paid for foreign equipment on our lines: 40 X Mex$8 X 23 X 365 = Mex$2,686,oo (2) The sum of (1) and (2) is the total benefit of the 40 ballast hopper cars: Mex$579,000 + Mex$2,686,400 = Mex$3,265,400 The annual rate of return is 19.6%. LOCOMOTIVES, CARS AND SHOP MACHINERY Since the locomotives and cars were purchased because of the need to expand N de M's carrying capacity, it was decided to analyze the two investments together. A total of Mex$355.3 million was spent for 84 locomotives and Mex$821.3 million for 3,450 cars. The additional locomotive hauling capacity is: 84 X 30,700,000 NTK/loc.-yr. = 2,578,800 NTK/yr. (1) The purchase of 3,450 cars increased hauling capacity by: 3,450 X 2,200 NTK/car-day X 365 = 2,770,350,000 NTK/yr. (2) As (1) is less than (2), we took the additional capacity supplied by the locomotives for purposes of evaluation. The evaluation criterion used is based on the assumption that if N de M had not purchased the abcve-mentioned equipment, the 2,578,800,000 net t-km would have had to be trucked at a greater cost. The average variable cost by rail is Mex$0.34 per net t-km, whereas by road, according to current data from the Secretariat of Human Settlements and Public Works, the figure is Mex$3,091 per thousand vehicle-km on paved roads, at an average speed of 60 kph. Considering the average truckload of 8.7 tons, this gives Mex$0.35 per net t-km. - 87 - From the foregoing, the annual benefit attributable to the investment in traction equipment and rolling stock for freight service is: Mex$(0.35 - 0.23) X 2,578,800,000 = Mex$309,456,000 As in the evaluation of the original project, the rate of return analysis for locomotives and cars took into account the outlays for the purchase of shop equipment. We therefore added Mex$65.0 million to the Mex$1,176.6 million mentioned in the first paragraph, giving a total investment of Mex$1,241.6 million to be justified. (in millions of Mex$) 1972 1973 1974 1975 Locomotives 194.o 161.3 - - Cars - 106.8 714.5 - Shop equipment 2.6 7._ 34.6 20.3 196.6 275.6 749.1 20.3 The internal rate of return is 18.3%. AXLES AND BEARINGS From 1973 to 1975, 6,000 axles and 12,000 bearings were purchased and installed to replace the friction roller system on 15,000 cars. The benefits attributable to this investment are the elimination of train delays and accidents and the reduction of costs for replacement of materials caused by hot boxes. N de M now has 13,900 units with friction bearings and a recent sample showed an average of 2,000 hot boxes per year, i.e. 0.14 hot boxes per car-year. Likewise, experience shows that each hot box causes a train delay of 20 minutes. The saving realized by equipping 1,500 cars with axles and bearings, in order to eliminate delays, is: 0.14 X 1,500 X 20/60 X Mex$1,600/train-hr = Mex$112,000/yr. It was also observed that there were 0.7 accidents for each 1,000 car-years attributable to hot boxes, at an average cost of Mex$150,000/accident, from which we calculate savings in this respect at: 0.0007 X 1,500 X Mex$150,000 = Mex$157,500/year. Each hot box entails repair costs, including parts replacement and labor of approximately Mex$5,900 per damaged car, from which we calculate the benefit at: 0.14 X 1,500 X Mex$5,900 = Mex$1,239,000/yr. Lastly, the replacement of the friction bearing system with axles and bearings yields a savings in oil and lubricants of approximately Mex$1,460/car-year, i.e.: 1,500 X Mex$1,460 = Mex$2,190,000 In sum, the benefit attributable to the Mex$21.9 million outlay for axles and bearings is: Mex$112,000 + Mex$157,500 + Mex$1,239,000 + Mex$2,190,000 = Mex$3,698,500/yr. The annual rate of return is 13.8%. TELECOMMUNICATIONS For the economic evaluation of investments in the telecommunications network we updated the March 24, 1974 study, taking the total amount of investments for both the UHF and VHF radio communications system and those for the operations control system. I. The increase in operating costs was recalculated at an estimated Mex$116.4 million per year. $60 million X 1.94 1/ = Mex$116,h0o,000 (1) II. It was assumed that car utilization would increase by 20%, on the basis of a fleet of 35,500 cars in service at an average cost of Mex$8 per day, i.e.: 0.20 X 35,500 X Mex$8 X 23 X 365 = Mex$476,836,000 (2) It was also assumed that there would be an increase of lkph in the average speed of freight trains, without increasing tractive power per gross t-km and based on the current speed of 25 kph. 1/25 X 1,800,000 hp 2/ = 72,000 hp. For the increase in utilization of line locomotives for freight service, we continued to assume that utilization would increase by 1% from the current 52.5% for the first four months of 1978. 1/52.5 X 1,800,000 = 34,200 hp. The two preceding equations give a savings of 106,200 hp., at an annual cost of: 106,200 hp X Mex$5,500/hp X 0.13 3/ = Mex$75,933,000 (3) For decreased damages to equipment, the previous estimated was updated: 4,750,000 X 1.94 = Mex$9,215,000 (4) - 89 - Lastly, with regard to the reduction in crew overtime, the previous estimate was again updated: 21,000,000 X 2.4 4/ = Mex$50,4oo,ooo (5) In sum, the annual benefits are: (2) + (3) + (4) + (5) minus (1): Mex$476.8 + Mex$75.9 + Mex$9.2 + Mex$50.4 - Mex$116.h = Mex$495.9 million. The annual benefit of Mex$495.9 million is attributable to the total invest- ment of Mex$1,276.6 million; however, for purposes of evaluation we considered that only 30% of the benefits are attributable to the Mex$381.7 million invested with partial financing under Loan 825-ME. Investments in telecommunications and systems for each year are shown below. (in millions of Mexican pesos) YEAR TELECOMMUNICATIONS OPERATIONS CONTROL 1975 62.3 - 1976 253.4 21.8 1977 264.0 13.2 1978 271.4 18.2 1979 297.0 20.5 1980 44.8 10.0 Total 1,192.9 83.7 The rate of return is 20.0%. (1) 1974-78 price index. (2) Power used for freight service. (3) Capital recovery factor at 12% over 20 years. (4) Increase in crew wages and benefits. VIII* ROLE OF THE WORLD BANK N de M considers that the participation of the World Bank in the project was very useful. Its advice in identifying problems in the sector was sound and beneficial. In addition to the benefits derived from its financial participation, which was a key factor because of the advantageous terms and interest rates applied, the Bank's recommendations on the improvement of operations and management had a very favorable impact on the company, to the extent that they could be implemented. - 90 - We feel that the requirements regarding the submission of reports were not unduly complicated, since in general existing documentation was modified for that purpose. The supervision provided by Bank staff was invariably appropriate with regard to scope and intensity. One of the Bank's most valuable contributions to this project was the strengthening of planning and organization procedures and the introduction of techniques for the evaluation and monitoring of N de M projects. Undoubtedly, another advantage of the participation of the World Bank in the project was the international competitive bidding for imported goods financed by the loan, which enabled N de M to obtain prices that would certainly have other- wise been higher. IX. CONCLUSIONS Our major conclusion is that project objectives were in general satis- factorily met and that as a result of this experience N de M was able to formulate the 1976-77 project that is being financed by Loan 1232-ME, also from the World Bank. Goals for traffic growth were exceeded. To a great extent the investments under the project provided the capacity needed to meet the demand generated by the development of the Mexican economy. In general, levels of operating efficiency stipulated in the 1972-76 Plan of Action were reached, except with regard to the labor force and the availability of locomotives. The economic rate of return, as shown by the evaluations, is quite satis- factory, both individually and for all investments as a whole. Despite the rate increases authorized by the Government on our behalf, the financial targets had to be deferred owing to inflation which has driven up operating costs and prevented us from reaching the desired operating ratios. N de M implemented virtually all Bank recommendations with regard to institutional strengthening, largely with satisfactory results, although there were aspects in which the company was relatively powerless. Finally, we acknowledge the positive participation of the Bank in the pro- ject and we feel that we could suggest little to improve its procedures with a view to better results in future operations. TjTecote Caiii,co PROJECT COMPLETION REPORT ?no MEXICO - LOAN 825-ME Ri 'O*Color do SECOND RAILWAY PROJECT TRACK RENOVATION4 PROGRAM (1972 -75) A D 0 s Nt.eit' ý NOGALES Doug 4-s, EL PASO,TEX. N co A9u0 r 1e1 Lucero Peorsons O n,g, Pres.dio T sHERMOSILLO .D oD e 0 PROJECTS o RA Cd Acun HuaHua4 VRHRG SnCtas pE RAkE SO EJM -LA PIEDAD Corr Jut abomp azPeros , FO.. lende 2 CD. FRONTERA - EL ORO Sonchel A IU R B1- LAEOTX5MONTERREY-NUEVO LAREDO Sn Roael S ;e 00 EmUTpO sARMCqiOSbiS NovoL. LBoqu.lo K irr.jd RC s'oeó VO. LAREDO CU TL -O AR S o P J''.énz o RD R Fc.e0o o 1 5 HUEHUETOCA-ARAGON (linea B) S o.or eà B s 6TL ALTEPOXCO-ARAGON ', ls, Sn.Bl1. nsNevøý Benejo p oo AROWS7L CHICALOTE-SAN LUIS POTOSI G P ocMONERRY ÅMOROS 8 JAL APA-VE RACRUZ Tepehuanes TORREON A..cit C ~ SALTicA.ILL Alt. u1 ñ Lý AA P AAmB DN F A Vonegos Sn I,idro CDv T A \N DC F.Pescado, Motehucilo MAZATLAN Regocijo ee FenR ZACATE CAS A a cle Cioo L L T MPICOA AGUASCAU'ENTEs LA LVIor TEPlý p.T OC eau.,. GUADA JAJ N AB H CAMPEC Tic COuIMA eRye, -- t VFk 'Lo Urutpon C,N 'Q MANZANCIyL Apotnó N ME E s CMETUMAL > FI,G W G sócg CVILLAHERMOSA -B.I E < à FC Source: N de M liC,Z Pc.i t September 1978 To,,Che EB -. K \. ......•+ ++ K k CD.Hi rDALG