Mexico - Ports Rehabilitation Project

Of D _cmet of The World Bank FOR OFFICLAL USE ONLY Repait No. P-4529-ME * MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION ANI DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO USg50 MILLION TO THE BANCO NACTONAL DE OBRAS Y SERVICIOS PUBLICOS GUARANTEED BY TE UNITED MEXICAN STATES FOR A PORTS REHABILITATION PROJECT May 4, 1988 This document bas a restricted distbution and may be used by recipients only in the performance of their official duties. Its contents may not otherise be disclosed without World Bank authorization  CURRENCY 8QUIVALENTS Currency Unit = Mexican Peso (Mex$) US$ I = Mex$ 2,270 Mex$I million - US$440.00 (March 15, 1988) FISCAL YEAR January 1 - December 31 WEIGHTS AND MEASURES Metric System ABBREVIATIONS BANOBRAS National Bank for Public Works and Services DGOM General Directorate for Maritime Works SCT Secretariat of Comirunications and Transport CDP Port Development Committees CNCP National Ports Coordinating Commission SPTA Port Authority of Tampico-Altamira SEDRA National Dredging Service  KFOR OMCIAL USE ONLY MEXICO PORTS REHABILITATION PROJECT LOAN AND PROJECT SUMMARY Borrower: Banco Nacional de Obras y Servicios Publicos (BANOBRAS) Beneficiary: Secretaria de Comunicaciones y Transportes (SCT) Amount: US$50 million equivalent Terms: Repayment period of 15 years including 3 years of grace at the Bank's standard variable interest rate. Financing Plan: Government 19.6 Ports 20.6 1BRD 50.0 Total US$90.2 million Economic Rate of Return: About 22X Staff Appraisal Report: No. 6743-ME of April 25, 1988 map: IBRD 20358 R This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOtMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE BANCO NACIONAL DE OBRAS Y SERVICIOS PUBLICOS GUARANTEED BY THE GOVERNMENT OF THE UNITED MEXICAN STATES FOR A PORTS REHABILITATION PROJECT 1. The following report on a proposed Loan to the Banco Nacional de Obras y Servicios (BANOBRAS) for US$ 50 million equivalent for a Ports Rehabilitation Project to be executed by the Secretariat of Communications and Transport (SCT) is submitted for approval. This pToposed Loan would be repaid over 15 years, including 3 years of grace, at the Bank's standard variable Interest rate. 2. Background: Mexico is currently making efforts to increase and diversify its non-petroleum foreign trade. To this end, the Bank has approved a Second Export Development Loan (Loan 2745-ME), a Second Trade Policy Loan (Loan 2882-ME) and, very recently, loans to help restructure the fertilizer (Loan 2919-ME) and steel industries (Loan 2916-ME). Port efficiency is an important element in Government efforts to stimulate trade. The Mexican port system contains some 13 ports which handle international trade. Though the theoretical capacity of these ports is sufficient to handle the traffic expected in the coming years, effective capacity in the main port? has been depleted as many facilities are in disrepair and specialized equipment for handling containers or bulk traffic like grain or minerals is inadequate. Port operations are carried out by financially autonomous companies owned by the Government and Unions in different proportions for each port. Overall, responsibility for port administration and ownership of the installations are the Government's. Investments are firanced by Government's development budget but have not always been based on economic criteria, and cost recovery has been deficient. Recent Government strategy in the sector is to consolidate and strengthen the central planning function on the one hand and to decentralize responsibility for port operations, on the other. Consistent with this, all transport modes have been brought together under one ministry (SCT). The Government has also started to adjust port pricing for greater investment cost recovery by linking ship dues to the dollar exchange rate. It also intends to improve port productivity through the establishmernt of targets and action plans. 3. Rationale for Bank Involvement. The proposed project would complement Bank efforts directed at stimulating Mexican foreign trade by rationalizing investment decision-making and reducing transport cost. The Bank has played an active role in developing a transport strategy and pricing policy which would progressively reduce Government subsidies to the highway and railway subsectors. In the ports subsector the last two port projects, (Loan 1964-ME of May 6, 1981, and Loan 2450-ME of September 21, 1984) though limited in scope, have helped to establish a basis for rationalizing the system of port administration and the pricing of port services. Continued Bank involvement would help improve investment planning, operational efficiency and cost recovery policies, and reduce the level of regulation in the sector which, in turn, should reduce constraints to the growth of trade.  -2- 4. Project Objectives: The project objectives are to: (a) improve port efficiency through the rehabilitation and improvement of port operations, infrastructure, and equipment; (b) improve equipment management and maintenance; (c) assist in the improvement of the efficiency of dredging operations; (d) strengthen port investment planning and financial management, and (e) progressively reduce subsidies. 5. Project Description. In order to attain the above objectiits in the principal ports, the proposed project would finance specific investments in 1988-1994, primarlly in the rehabilitation of port infrastructure and equipment in the four ports of Guaymas, Tampico-Altamira, Mansanillo and Veracruz which handle about 70% of non-petroleum sea-borne foreign trade (30% of total costs). It would also help finwnce the acquisition of specialized equipment for containers and bulk grain equipment, spare parts, and technical assistance to make the recently formed Dredging Unit (SEDRA) more efficient and less costly (67%), and provide technical assistance to the SCT with regards to investment planning, organization and studies in the port-subsector (3%). The environment impact of the project Is expected to be minor but the project would finance the necessary studies. Implementation of the civil works will be by DGOM. Port operating equipment and parts will be acquired by the port operating companies of Guaymas and Manzanillo, and by the Sistema Portuario Tampico-Altamira (SPTA). For Veracruz, port equipment will be acquired by CNCP and dredging equipment by SEDRA. SCr has designated CNCP to be responsible for coordination, monitoring and reporting progress. CNCP has already appointed a project coordinator with the necessary staff for this purpose. The estimated total cost of the project is US$ 90.2 million equivalent, including US$ 22.3 million equivalent in taxes, with a foreign exchange component of US$ 50 million (55%). Retroactive financing of payments made after appraisal (December 1986) would not exceed US$5 million. Costs and financing plans are shown in Schedule A. Amounts and methods of procurement and disbursement and the disbursement schedule are in Schedule B. The timetable of key project processing events and the status of Bank Group operations are given in Schedules C and D, respectively. A map showing the location of the proposed project is attached. The Staff Appraisal Report No. 6743-ME, dated April 25, 1988, is being distributed separately. 6. Agreed Actions. During negotiations, agreement was reached with BANOBRAS and the Government on the following: (a) continued consolidation of planning in the federal ports system in one federal Port Planning Bureau; (b) scope and timing of consulting services for improving equipment maintenance, scrapping and acquisition programs for each of the project ports over the period to December 31, 1992; (c) Action Plans for ports and SEDRA covering financial and operational targets, and annual review of progress with the Bank; (d) the carrying out of cost studies to indicate appropriate levels of port dues and tariffs by November 30, 1989; (e) cost and tariff adjustments to attain Action Plan targets; (f) establishment of consolidated financial reports by CNCP with help from each of the port development and operating organizations; (g) the preparation by June 30, 1989 of a program of actions to give greater control by SPTA over operational contractors; (h) annual review with the Bank of the overall port investment program and use of agreed  -3- evaluation methodology for port investments; (i) that Bank agreement will be required for additional investment in the project ports; and (j) that investment in the project ports would be in accordance with an agreed schedule and corresponding Government budgetary provisions. A condition of effectiveness would be the signing of at least two of the subsidiary agreements between the Government and the executing agencies for the individual ports. Conditions of disbursement will be as follows: (a) for Veracruz; the signing of a program-contract, satisfactory to the Bank, between the port operating company and SCT for the purpose of implementing the action plan for tlat port; (b) for the other ports, the signing of a subsidiary loan agreement (covering transfer of funds and action plan targets) with the respective port operating agency. 7. Benefits and Risks: The proposed project yields an estimated economic rate of return of 22% based on conservative assumptions about traffic growth and productivity increases. Relatively small investments in rehabilitation and equipment and improvements in port organization and operations wlll reduce cargo handling costs and ship turn-around time, thus facilitating Mexico's international trade. The main risk concerns the possible failure by the Government to allocate sufficient budgetary funds on a timely basis because of the need to curtail public sector spending to achieve macroeconomic policy targets. However, this risk is small since the items included in the project constitute the essential core of the sector investment program which will be kept under close review in the context of our overall relationship with Mexico. Future progress on institutional changes and policy issues such as increased port charges, may face political resistance. However, actions already taken by the Government have confirmed its commitment to such reforms. Another risk is that dispersion of authority in Veracruz may delay project implementation. This has been addressed by making the disbursement of funds for Veracruz contingent on the signing of a program-contract, between the port operating company and SCT. 8. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank, and recommend that the Executive Directors approve it. Barber B. Conable President May 4, 1988 WashiDgton, D.C.  -4- Schedule A Estimated-ProJect Cost: US$ Million Port Civil Works Local Foreign Total New Construction 11.1 8.3 19.4 Wharf Rehabilitation - 2.0 1.3 3.3 Sub-Total Port Civil Works 1.1 9.Tr 262. Cargo Equipment New Equipment and Spare Parts 13.2 19.3 32.5 Rehabilitation of Equipment 0.9 1.6 2.5 -Sub-Total Cargo Equipment 14.1 20.9 35.0 Dredges Parts, Auxiliary Craft and Measuring Equipment 2.7 4.0 6.7 Rehabilitation of Old Dredges 2.7 3.8 6.5 Sub-Total Dredges 375 .47 M.2 Technical Assistance Supervision and Studies 0.5 1.7 2.2 Total Base Cost: 33.1 40.0 73.1 Physical Contingencies 2.9 6.2 Price Contingencies 4.2 6.7 10.9 Total Project Costs 40.2 1/ &O 90.2 Financing Plan: US$ Million Local Foreign Total Government 19.6 - 30.2 Ports' 20.6 - 10.0 IBRD - 50.0 50.0 Total 40.2 50.0 90.2 1/ Taxes and duties amounting to USS22.3 million are included.  Schedule B 1 of 2 PROCUREMENT Procurement Method (US$ Million) 1/ Responsible Project Element Agency ICB LCB Other Total Civil Works Construction DGOM 10.1 13.8 - 23.9 (4.4) ( 6.1) (10.5) Rehabilitation DGOM - 3.9 - 3.9 (1.5) (1.5) Equipment Purchase of New Equlpment and Spare Parts 2/ 39.0 - - 39.0 (23.4) (23 , Rehabilitation of 2/ - 3.0 - 3.0 Existing Equipment (1.8) (1.8) Dredges Spare Parts, Auxiliary Craft and Measuring Instruments 3/ 8.9 - - 8.9 (5.4) - - (5.4) Rehabilitation 3/ 8.8 - - 8.8 (5.3) (5.3) Technical Assistance Project Supervision and Studies 4/ - - 2.7 2.7 - - (2.1) (2.1) Totals 66.8 20.7 2.7 90.2 (38.5) (9.4) (2.1) (50.0) 1/ Amounts in parentheses show the allocations from the proceeds of the Loan. 2/ The local procurement committee assisted by CNCP except for major pieces of equipment which would be done directly by CNCP. 3/ SEDRA assisted by CNCP. 4/ DGOM for civil works including the National Dredging Study, SEDRA for th dredge rehabilitation and FIDEMAP for assistance in the procurement of equipment and spare parts.  -6 Schedule B Page 2 of 2 DISBURSEMENTS Amount of the Loan Category Loan Allocated % of Expenditures (Expressed in to be Financed 1/ Dollar Equivalent) I. Civil Works 9,600,000. 42% II. Equipment 20,900,000 100% of foreign expenditures, 100% III. Rehabilitation of Dredges 7,800,000 of local expenditures (ex-factory cost) and 65% of local expendi- tures. IV. Technical Assistance 1,700,000 100% V. Ukallocated 10,000,000 Total 50,000,000 .Estimated Disbursements Estimated Disbursements: Fiscal Year 1989 1990 1991 1992 1993 1994 1995 (US$ Million) Annual 14.0 1/ 9.0 13.8 5.4 4.4 2.2 1.2 Cumulative 14.0 23.0 36.8 42.2 46.6 *48.8 50.0 1/ Includes retroactive financing up to US$5.0 million and inlitial disbursement of US$6.0 million into Special Account.  -7- Schedule C Page l1of 1 MEXICO PORTS REHABILITATION PRnJECT I. - Tivetable of Key Project Processing Events * a) Time Taken to Prepare the Project: 18 months b) Project Prepared by: Secretaria de Comunicaciones y Transportes (SCT) c) First Bank Mission: April 1986 d) Appraisal Mission: December 1986 e) Negotiations: April 1988 f) Planned date of Effectiveness: June 1988 g) Relevant PCR's and PPAR's Ports Project 820-ME PCR of November 20, 1978 PPAR-2592  ITATUS OF RARE SUP OPIRAIONI 1i NsXuIt I/ Schedul. D (As of leptesbar 33, 1007) plasel Assent Loee t 1a Less go, TVer Borrower Purpose Coetllteseons barged a an SW4,0f ----- ------ -- flee 70 tongs tfatt gtebev,.. 4,070.gi 1730-3 1071 WAPZISA ter1ettea 00.00 lo.13 13s5-U 10o NAFPZUA Zeitgsatle t0.00 s0.l* 1318 1l0l DANOSRAU Water leppty 'p 13. 44.48 1101 tlUll OAU@5A0 Urban Sa.alepumt *U 104.05 50.04 3043 1os3 EAPIUOA 1stagrpatad letl Dvw. 170.30 03.8s 3143 1l53 SAP?53A Capiet, foods Zs4tetrty 113.3 70.67 0154 10s3 NAPNINA Puilutasa castret l5.33 11.51 3104 l03s 3A5331A0 Urban gsoa.eriag n.3n 1.37 3l3s One *APMOSA Agriatteraet Nerket1e 113.30 40.45 00al 1oss SANDSASI Third Weter lopptl 103.33 5l3.3 le3s 1ots UAPIRIA Third lWad taudetry 175.00 .08 33l3 10 3IA33NX11 gImpart Oewaepaenso 003.03 .0e 3435 1004 IASDOASU Wtoheaya 300.03 1OO.31 3430 1034 IANPIODA Porto 70.00 00.70 los5 10l5 *APUSA ohapas Ruret Rneeds 30.1O loos Rosa 1os5 NAPINSA shiepes Atria 3.,. 00.38 77.04 3540 lose XAPZN9A So/Ned 4Glae Ntmlig It 100.53 31.04 355s ilea NAPINIA Vecsattese edeuation l1.33 s0.35 0575 1330 SAIS3BAO latlsays V *00*0.5 103.03 I3la 1335 MAPNISA Agteoultoet Oraedt 130.30 s.e5 301s isle OAUOIURA Low-Ineao Ramastg 2 110.03 1.8*.5 l053 i0s0 MAP*I PrOdetrib St 1l3.oO 03.47 3605 13s0 IAIOOIRAG Ertbhqe.k Rehab. 430.00 113.3l 3600 1333 9ANOORA Isuoeleput *tspasgthoesa 40.03 37.03 336e 1l3e 3A1ORA3 loltd Waste Pilot 33.00 33.30 9745 1337 3AU5OLXT trods Pulley Lose I 500.00 10.30 0740 137 lAPIN Iudestrit Raswwery 110.03 117.73 0747 1037 lAPIN Tsohualegy Savelapset 43.00 30.37 3777 1337 *SlO Expert 0Owet,spuat Is 350.00 lasi.1 3634 1337 UIANORBA UVbsn Trenspors 135.03 1g3.OO 9837 1037 NAPIN Aurieultorat credit 400.000 ts.l$ 305e 8/ 1037 MAPS* lu/Nad tRdsotre1e 2V 111.03 135.00 3353 1037 NAPIN AgeriutsureL Istension 0.03o 17.41 TOTAL 3,733.31 Of *bieb boe bren repaid to tbe leak 3.431.00 -a---e------ Total sen outstanding 7,33e.as Aougnt seld 33.04 Of welsh *s bsoe repe1d 50.34 c.30 Total now bald by Doek 3/ 7*9*0.*3 Ttalt e.dtabereed 3,477.73 I/ The states ot tho projetse Klted in Part A is is o eparated report on att Book/I0A tfianeod proJoaot In easouslos, ehloh Is updated t.ia* yeorty usc Otroeloted to She lusaetive Otruotre an April 00 aed Ocetor J1. 3/ Pr1rI to exabouas adJuutoonta. 1/ 1Nt wat aft?eotte. October It3 1067  4961 '6 4300*0 *0$edo1 a 0ooo0dI &VI**soo R O O , s i n P eeq * O O Z 0 O* 0 t A t o1 3 ---- --- ---- ~ ~ ~ ~ ~ ~ ~ ~ 94--veX"ttS*'*8W* 00109Xe POO 6sest4z |odeff "}w *5jC *.ss. p*P%'s1043 0Pp110000d