Mexico - Toll Transport Facilities Project

R E S T R I C T E D Report No. TO-315e This report was prepared for use within the Bank. It may not be published nor may it be quoted as representing the Bank's views. The Bank accepts no responsibility for the accuracy or completeness of the contents of the report. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT APPRAISAL OF THE TOLL TRANSPORT FACILITIES PROJECT MEXICO June 12, 1962 Department of Technical Operations  CURRENCY EQUIVALENTS Mex$ 12. 50 = US $1. 00 US$ 8 = Mex $1.00  MEXICO APPRAISAL OF THE TOLL TRANSPORT FACILITIES PROJECT Page SUMMARY i I. INTRODUCTION II. GLNERAL TRANSPORT FACILITIES 1 III. THE "CAI{tNOS Y PUENITES FEDERALES AUTHORITY" 2 A. Organization and Management 2 B. Present Scope of Activities 3 C. Financial Position and Earnings 3 IV. THE PROJECT 6 A. Description of the Proposed Project 6 a) Toll Ro:sds 6 b) Access Roads and Other Tlorks 8 c) Toll Bridges 9 d) Ferry 10 B. Design Standards and Specifications 11 a) Road Standards 11 b) Bridge Standards 12 c) Ferry Specifications 12 C. Status of Engineering 13 a) Roads and Bridges 13 b) Ferry 14 D. Cost Estimates of the Project 14 E. Award and Procurement Procedures 15 F. Local and Foreign Currency Components 16 G. Phasing of Construction Expenditures and Foreign Coponent Cash Flow 17 V. FINANCING OF PROJECT 18 A. Financial Scheme 18 B. Toll Rates and Financial Returns 19 VI. TECHNICAL JUSTIFICATION OF PROJECT 21 A. Traffic Level 21 a) Traffic Records 21 b) Traffic Growth 21 c) Capacities 23  Table of Contents Cont'd. Page t1. Justification of Proposed Design Standards on Toll Roads 23 C. Traffic on Toll Bridges 23 VII. ECONOMIC JUSTIFIC-TION OF PROJELCT 24 A. Justification of Traffic Forecast 24 B. Direct Economic Returns on Roads and Bridges 24 C. Economic Returns of the Ferry 26 D. Additional Benefits and Indirect Returns 26 VIII. CONCLUSIONS AND RECOINENDATIONS 27 ANNEXE.S Appendix A. Economic Development of the Affected Areas Appendix B. Appraisal of Direct Economic Benefits on Roads and Bridges Appendix C. Technical and Economic Justification of the Ferry Table 1. Revenues and Traffic Growth on Present Toll Facilities Table 2. Principal Design Standards of Toll Roads Table 3. Principal Design Standards of Toll Bridges Table 4. Principal Specifications of the Ferry Table 5. Program of Investments Table 6. Audited Balance Sheet of the C.Y.P. Authority Table 7. Cash Flow Table 8. Debt Service Table 9. Saturation ratio on Existing Roads Table 10. Analysis of Average Operation Cost of Vehicles per Km. Table 11. Illustrative Table of Economic Returns (Mexico-Venta de Carpio) Table 12. Illustrative Table of Financial Returns (14exico-Venta de Carpio) Figure 1. Organizational Chart of "Caminos y Puentes Federales de Ingresos" Figure 2. Vehicle Registration Increase and Gasoline Consumption in IMexico MAPS New Toll Facilities Project - Main Highway Network Detailed Map of Projected Toll Roads Mexico City - Puebla - Orizaba Toll Road -- Zone of Economic Influence  IEXICO APPRAISAL OF THE TOLL TRANSPORT FACILITIES PROJCT SU>+LARY i. The Government of Mexico, through its autonomo Ls authority "Caminos y Puentes Federales de Ingresos", has requested -he Bank to assist in financing a part of a program of Toll Facilities in kMe: ico. ii. The first phase of the program now under consideration consists of three toll highways, five toll bridges, and a ferry wit.i its terminals. One of the toll roads and four bridges are already in various stages of construction. iii, The project is scheduled for the period November 1, 1961 through 1964 and totals about USki67.4 million equivalent, including administrative overhead and contingencies. iv. The proposed loan would be the second Bank loan for road con- struction in Mexico. It would total USC30.5 million on the basis of the foreign currency component including interest during construction, and would be about 41% of the total cost oL the project. V. IlMexico has deliberately and successfully engaged, for the past few years, in a program of toll facilities to provide faster and more con- venient transportation in the areas where congestion is becoming serious on existing free highways, in order to reserve budgetary resources for maintenance and road extension into regions not yet adequately served. vi. The local administration and organizational structure of the Public Authority in charge of these toll facilities, "Caminos y Puentes Federales de Ingresos", is satisfactory. The Authority appears to be competent for managing and maintaining the facilities which would result from the new project. vii. The design and planning were done by the Project and Laboratory Division and the implementation will be carried out by the Highway Con- struction Division, both part of the Ministry of Public W'Jorks. These Divi- sions have clear lines of authority. They are efficiently organized, equip- ped and staffed and foreign consultants are not required. viii. All Bank-financed new contracts will be awarded on the basis of international competitive bidding, according to contract procedures and methods satisfactory to the Bank. ix. Estimates of construction cost and of the foreign currency component are realistic. The local currency component of cost would be financed out of additional loans from "Banco Hipotecario", and earnings of "Caminos y Puentes".  x. Extensive information, including reliable traf.'in- counts, has been supplied, They show that the project would yield a hi.gt economic return on capital investment, resulting principally from the 3avings in vehicle operating cost by using the new toll highways or to:l bridges. The toll highway and the ferry which are to serve Baja CaLJifo:-nia will provide this territory with new transportation facilities essential to its development. xi. Financial returns expected from every facility of the project would repay with 6% interest their full investment cost in 8 to 20 years, a shorter period than the economic life of any of the facilities, xii. The project is considered to be suitable for a Bank loan of USW30.5 million equivalent, over a period of 20 years including a grace period of three years.  MEXICO APPRAISAL OF TH' TOLL TRANSPORT FACILITIES PROJECT I. INTRODUCTIONT 1. The Government of Mexico, through its autonomous authority "Caminos y Puentes Federales de Ingresos" approached the Bank in October 1961 for a loan to finance part of the cost of a program of Toll Trans- port Facilities in Mexico. The total cost of the project is estimated at US%67,4 million equivalent. 2. The Bank made a highway loan to Mexico in 1960 (Loan 268-_E) for the construction of 3,200 km of roads in various areas. This project is being satisfactorily carried out under the supervision of the Public Works Department. 3. This report is based on the preliminary studies made by the Public Works Administration and on the findings of the Bank mission which visited Mexico in December 1961 to study the proposed Toll Transport Facilities Project. II GENERAL TRANSPORT FACILITIES AND HIGM1JAY POLICY 4. The economic development of MIexico has been progressing at a rapid pace during the past decade, especially in the areas surrounding the capital, Mexico City. During this period the number of vehicles and the consumption of gasoline have more than doubled (see Figure 2). The capac- ity of the transport system, particularly highways, is limited and in some areas, especially near the capital, is greatly in need of enlargement. Since 1946, each successive administration has stressed the development of the country's road system on the basis of well-planned and executed programs. The total network now has some 45,000 'km of roads, including 20,000 kn of federal highways. The federal road system is being improved and extended with the help of the Bank's previous highway loan which will result in the construction and improvement of 13 roads totaling 3,200 kmo, mostly serving new areas, throughout the country. The present program concentrates on areas where traffic is already substantial and where congestion is becoming serious. 5. Toll highways are to be constructed in areas where traffic is especially heavy. In this way the Government expects to eliminate growing congestion and to provide faster and more convenient transportation. When these toll roads are completed the users will have in each case the choice of taking the free highway or of paying a toll to attain the comparative advantages of faster and more convenient transportation available with the new toll highway. Experience with those toll roads already built in Mexico indicates the success of this method in financing the construction of superhighways without burdening the Government's budget.  - 2 - 6. Because of the grea demand for the continued imorovement and extension of the highway system throughout the country, the 3overnment's policy is to reserve budgetary resources for maintenance of the existing system of free highways and its extension into regions not yet adequately served by any transport facility. III. THE "CAIHINOS Y PUENTES FEDERA.LES" AUTHORITY A, Organization and Management 7. An autonomous corporation in charge of toll highways was first created in 1952 to take over the operations of the new Mexico-Cuernavaca Highway. Other toll transport facilities were brought under the management of this authority which was reorganized in 1958. The last step resulted in the present organization, "Caminos y Puentes Federales de Ingresos" which was created by presidential decree on June 3, 1959, as an autonomous Public Authority to take over sole responsibility for financing, operating and maintaining all toll transportation facilities in Mexico, including roads, bridges and ferries. 8. The Board consists of the following six members, or their representatives: Secretary of Public Works, Secretary of Communications, Secretary of Finance, Secretary of National Properties, and Members selected by the Banco Nacional Hipotecario / and Mexican Roads Association. 9. The President and the Vice-President are named from members of the Board by the President of the Republic, in accordance with the legis- lation covering Public Authorities. At present the President is the Secretary of Public Works and the Vice-President is the Secretary of Com- munications, Although "Caminos y Puentes" is autonomous in form, its poli- cies, programs, and capital and operating budgets are subject to approval of the Government through its representatives on the Board. An external auditor is appointed by the Ministry of National Properties, also in accordance with the legislation covering Public Authorities. 10. The Authority is managed by a General Director appointed by the Board; the organization includes four divisions respectively in charge of Operations, Administration, Maintenance and Equipment. (See Figure 1). The presidential decree setting up the Authority also states that the Secretariat of Public IJorks is directly in charge of designing, contracting and supervising the construction of toll roads and bridges which upon completion are turned over to the Authority. Toll rates are proposed by the Board, and approved by a presidential decree, after consultation with an Advisory Commission on Transportation Tariffs, within the Secretariat of Communications. 1/ Banco Nacional Hipotecario Urbano y de Obras Publicas, an institution of the Federal Government.  - 3 - 11. All the toll roads and bridges continue to rena-.n "national properties". The application of tolls is not limited to any fixed period of paying off the cost of the investment. It is specifical r intended that tolls will continue to provide substantial funds for th3 construction of further toll facilities. B. Present Scope of Activities 12. The facilities presently in operation consist of four sections of toll roads, five toll bridges and three river ferries. The toll roads already cover two major routes out of Mexico City, one of 170 Im length to the south area through Cuernavaca, Amacuzac and Iguala towards Acapulco, and the other of 200 km length to the northwest through Palmillas, Queretaro and Apaseo. (See Map 2). The design standards are good on the four-lane toll road to Cuernavaca, but the two-lane toll road to Queretaro is already overcrowded during peak hours particularly because of the high percentage of trucks and trailers that travel this route. 13. Traffic studies indicate that these toll highways attract about two-thirds of the traffic between points served while one-third goes on the free roads. (See Table I). The annual growth in traffic has averaged 10% per year, over the road network in Mexico with somewhat higher rates on the toll roads, especially during the first three or four years of operation. 14. The operation and maintenance of these roads is satisfactory. The annual expenditure for maintenance has been about US$730 equivalent per km on the four-lane roads. The construction and operation of the various bridges and river ferries for which the Authority is responsible also appears to be sound and satisfactory. C. Financial Position and Earnings 15. The following comparison of balance sheet items sumarizes the financial history of the Authority since its creation:  -4 12/31/59 12/31/60 10/31/61 - -- kMex4 b 0009) - - Assets Gross fixed assets 359 370 459 Accumulated depreciation 35 42 50 Net fixed assets 324 328 409 (Net investmnent in roads and bridges included in above) (323) (325) (346) Works in progress 43 142 216 Deferred assets - 5 7 Excess current assets over current liabilities 23 - _ Total assets 390 475 632 Capital and Liabilities Government contribution and reserves 390 1423 454 Debt - 2 124 Deferred liabilities - - 3 Excess current liabilities over current assets - 50 51 Total capital & liabilities 390 475 632 The audited balance sheet as of December 31, 1960 is reproduced in Table 6. 16. Since 1959 fixed assets have increased by about 30,% due to the commissioning, mainly in 1961, of several new bridges and ferries and the procurement, also in 1961, of Mex$5 56 million worth of construction equip- ment for rental to other Goverrment agencies and contractors. Works in progress have increased considerably with the construction of important works which are expected to be commissioned in 1962. 17. In 1959 all assets, including an excess of current assets over current liabilities, were covered by the Government's contribution to capital, representing the value of the assets taken over by 1Carminos y Puentes" at the time of its creation. Since then reserves have been built up through retention of profits. Goverrnment capital and reserves have in- creased from Mex4 390 million in 1959 to Mex, 454 million on October 31, 1961 and about Mex$ 461 million on December 31, 1961, However, because  - 5 - of the large amount of works undertaken, the coverage of assets by the Government's original contribution and reserves has fallen tc 72%, with the balance financed out of medium and short-term credits from the Banco Hipotecario and suppliers. 18. The largest part of this debt (about Mek,; 130) is owed to the Banco Hipotecario. The M4inister of Finance gave assurance that there would be no difficulty in extending the maturities of this debt to 6 years, which would necessitate yearly payments to the Banco Hipotecario of about Mex$ 21 million. This level of payments has been assumed in the financial analysis of this report. 19. Revenue and expenses over the past three years have been as follows: 1959 1960 Estimate 1961 - - (Mex$ 0o00,00__ Toll receipts 39.9 45.8 56.o Cost of maintenance, repairs, operation and administration 3.8 5.8 9.8 Net operating receipts 36.1 40.0 46.2 Depreciation: roads and bridges 8.1 7.3 7.7 equipment .3 .5 .9 Total depreciation 8.4 7.8 8.6 Net operating income 27.7 32,2 37.6 Non-operating income and equipment rentals 1.1 .9 .3 Surplus credited to reserves 28.8 33.1 37.9 20. At the end of 1960 gross fixed assets amounted to Mex$ 370 million. Those assets produced in 1961 net operating receipts before depreciation of about Hex$ 46 million. (The new fixed assets added in 1961 including equipment for rental did not yet produce any substantial revenue in that year), If those assets were to produce constant annual net receipts of Mexs; 46 million, the investment would be paid off in 30 years with a return of 12% or in 11 years with a return of 6%. However, if traffic grows as expected and tariffs and costs remain constant, the average return over the reasonable life of the assets would probably exceed 12%. Works now in progress and which are scheduled to start operating in 1962 and 1964 are expected to yield a return on investment at least as satisfactory as that on existing investments.  21. Experience to date clearly indicates the high return which can be expected on investment in toll facilities in Mexico. The Authority responsible for the toll roads has a sound financial structure. Although at present the current asset position appears inadequate, this can be easily modified through the arrangement of proper financing as new works are carried out. IV. THE PROJECT 22. In 1961 the Mexican Government, through the "Caminos y Puentes Federales Authority" requested the Bank's assistance in financing an ex- tensive program of toll facilities. However, in the course of discussions with the Secretary of Public IWorks and the Secretary of Finance, it was agreed that the execution of its entirety in three years would result in too great a financial burden for the country. Furthermore, some sections of the new roads might be competing with existing railways, and it was agreed that more studies of the possible competition between road and rail- way traffic in these areas have to be made before these roads are carried out in a second phase (see Appendix A). A. Description of the Project 23. The present project consists of three toll roads, five bridges and a ferry. One road and four bridges are already under construction, and the Bank loan would apply to the works to be executed for the period NJov. 1, 1961 through 1964, the cost of wlich amounts to about Mex$ 842 million (US$67.4 million equivalent). a) The Toll Roads 24. The toll roads proposed are the first stages of two major routes out of Mexico City, to the east in the direction of Orizaba and Vera Cruz, and to the north in the direction Pachuca; and the Tijuana-Ensenada road, an important tourist route south of the U.S. border in Baja California. 25. The Nexico City-Orizaba road on the route east of Mexico City, comprises two different sections: Mexico City-Puebla and Puebla-Orizaba. 26. The Mexico-Puebla section (four-lane 111 km) was started in January 1960. It runs to the east through the heavily industrial suburb around Santa Martha and will provide the capital with a new link to the important industrial city of Puebla (about 300,000 pop.). The present road follows a difficult route traversing a very mountainous area. The section on the outskirts of Mexico City will offer two access interchange systems within a distance of a few kin, in order to serve freely the impor- tant industries of the area. The third interchange at 92 km will serve  - 7 - the city of Texmelucan, and also provide a connection to the Texmelucan- Ocotoxco road. Two interchanges are also under construction in the neigh- borhood of the city of Puebla. The entire section is scheduled to be completed by mid-1962. 27. The Puebla-Orizaba section (two-lane toll road - 140 kIn) would link Puebla to the rich agricultural and industrial area of Orizaba and Cordoba, and further to the new developing regions of Tresvalles, Papaloapan and the port of Vera Cruz. 28. Most of the existing road has a 7.20 meter pavement and is well maintained. From Puebla to Tecamachalco, it traverses a flat plateau and serves a few relatively small towns, From Tecamachalco to Orizaba it follows a long circuitous route through Tehuacan and Acultzingo winding through a very high pass with a continuous grade of 10% to 14% on a stretch of about 18 km, entailing great hardship for trailer and truck traffic. 29. The first 40 km of the new toll road from Puebla to Tecamachalco, running through the plateau, will be parallel to and a short distance from the existing road. This section has been included in the project for a number of reasons: i) traffic has been building up at a rate substantially beyond expectation on the parts of the first section recently opened to service, which indicate that saturation on the Puebla-Tecamachalco free road might be reached before the present progran is completed; ii) the following section, Tecamachalco-Orizaba, is justified as mentioned below and included' in the project and a gap of 40 km between two sections of a toll road would be a hindrance to the through traffic; iii) the cost of building the whole road would be lower while construction is being carried out at the same time. On the 100 km from Tecamachalco to Orizaba, the new road, running through another valley, would shorten the driving distance by 35 km and lower the maximum grade from 14% to 5%. This would result in very substantial savings for the users and justifies the inclusion of this section in the program. 30. The first stage of the Mexico City-Pachuca road will run from Mexico City to Venta de Carpio (four-lane - 32 km). It traverses relatively flat terrain in the outskirts of the Capital and passes through the rapidly developing industrial area north of the city. The present road is narrow (6 m wide) and difficult to improve. Traffic is very heavy and growing rapidly because of the development taking place in this area which also in- cludes a new international airport. At the end of this section of the road there will be an access leading to the road to Teotihuacan, the most impor- tant touristic center in the Mexico City area. This road has also be in- cluded in the project. 31. The Tijuana-Ensenada road (102 km) will be located in the upper part of the Baja California area, close to the border of the United States. Tijuana is a lively border-town developing rapidly. Itspopulation (160,000) has nearly doubled during the past 10 years. The present road south from  - 8 - Tijuana is narrow and winding (6.20 m wide) branching cut, either along the coast or the inland hills, to Rosarito El Sauzal and Ersenada (60,000 population), a relatively important port. This road is overcrowded es- pecially on weekends and holidays, with many American tourists coming from San Diego and Southern California. 32. The new four-lane road would be located entirely along the coast; the first section (Tijuana-Rosarito 27 kim) was started by the local author- ities of Baja California two years ago but could not be completed because of a shortage of funds. The earthworks and a section of pavement are com- pleted. The second part (Rosarito-La Mision 36 km) will follow the present road with higher design standards, on the slopes of the plateaus. The third section (La Mlision-El Sauzal 32.3 kIn) will serve a new tourist area, along the coast branching away from the existing road which winds through the mountainous inland terrain. The new road will again join the old road at the little fishing center of El Sauzal. The last section (El Sauzal- Ensenada 9 kn) traverses a relatively built-up area where many housing pro- grams are in progress. Two main tourist centers in Popotlan and Santa Rosa and several other trailer camps and tourist areas, have been projected along the coast and will be linked with the expressway through interchange systems. b) Access Roads and Other Works 33. The Government appreciates that adequate access and approach roads are essential to the success of these expressways. 34. In the Mexico City area, the construction or improvement of the urban or suburban avenues leading to the new toll roads have been designed and partly undertaken by the Federal District Public Works Administration, out of its own budget. Furthermore, according to Government policy, a certain number of access roads must be constructed or reconstructed in the areas served by the new toll roads; these works must be financed by "Caminos y Puentes Federales Authority", though these access roads would produce only indirect revenues by increasing the accessibility of the toll roads. 35. After their completion, they will become part of the federal highway network and will be maintained by the Public Works Administration. The present project includes four such roads costing about 10% of the total cost of the project: La Pera-Cuautla (37 kin) access road to the existing toll expressway to Mexico-Cuernavaca; Temnelucan-Ocotoxco (40 km) access road to Mexico-Puebla expressway; Ciudad Serdan-Esperanza (20 km) access road to Tecamachalco-Orizaba expressway; Venta de Carpio-Teotihuacan (25 km) access road to Mexico-Venta de Carpio expressway. These roads, designed to acceptable two-lane standards, will complement the toll roads and benefit regions not immediately contiguous to them. 1/ / During negotiations, the "Caminos Authority" stated that for an initial period tolls would be charged on two access roads (La Pera-Cuautla and Venta de Carpio-Teotihuacan). During this period the Authority would be responsible for the operation and maintenance of these two access roads.  - 9 - 36. The project also includes a modest amount of miscellaneous equipment (electronic devices for traffic control, signal panels, etc.) as well as the construction of some toll gates. c) The Toll Bridges i) Coatzacoalcos Bridge 37. The estuary of the Rio Coatzacoalcos, in the southern part of the Gulf of Mexico, will be crossed by a 960 m bridge, a few kms south of the city of Coatzacoalcos. This bridge (12.80 m total width) on the important route Mexico-Vera Cruz - Puerto Juarez will offer improved access to the eastern part of MIexico (states of Tabasco, Campeche, Yucatan and Quintana Roo). It is to carry a large sidewalk, a two-lane roadway and a rail track. As the Rio Coatzacoalcos provides an entrance channel about 30 feet deep to an important inland oil port (refinery and chemical plants), the bridge is equipped with a lift steel truss of 66 m span giving a clear- ance of 35 m above the water level. 38. Construction started in 1959 and is nearing completion; the bridge is scheduled to be put in service in the middle of 1962. After international competitive bidding the steel structures (lift span, towers and mechanical equipment) have been built and are being assembled by the German Firm M.A.N. All the concrete structures are being built by YMexican contractors after domestic competitive bidding. 39. The bridge will replace two ferries, one owned by the Southeast Railways Company, the other privately owned, The Company has agreed to pay an annual toll for its trains. According to the Mexican regulations the ferry concession periods are always limited to the date of construction of a bridge replacing the ferry. ii) Culiacan Bridge 4o. In the state of Sinaloa, along the Pacific Coast, the important highway Mexico-Mogales crosses the Rio Humaya in the neighborhood of the important city of Culiacan on a ford several hundred meters long located on the crest of a gravel dam. Rising waters during flood periods make the crossing impossible for several months of the year. At such times the Pacific Railway Company allows the road users to drive, under very rough conditions, across a railway bridge located about 500 m downstream. This one-way bridge is nearly 700 m long and the crossing trains (6 or 7 per day) disrupt the road traffic for nearly an hour each time. In spite of these limitations, the daily traffic is high (1,5G0 v/per day, 40% of which are buses and trucks). The construction of the new road bridge was started in April 1960, after domestic competitive bidding, and is scheduled to be completed by mid-1962.  - 10 - iii) Alvarado Bridge 4i. This bridge is located at the eastern exit of the city of Alvarado, near Vera Cruz, on the important highway Mexico-Puerto Juarez through Coatzacoalcos. It will replace a ferry at the outlet of the Papaloapan lagoon. The fishing port of Alvarado, inside the lagoon, only receives small boats which could easily sail under the 20.00 m clearance of the bridge. However, in spite of the location near the important port of Vera Cruz (40 ki) local authorities have assumed that Alvarado, after appropriate dredging, ultimately in the future will receive ocean vessels. For that purpose, one of the concrete spans is designed to be replaced later, if necessary after some reinforcing works, by a lifting steel truss. Pile driving is under way on force account in every pier location; tenders still have not been called for the concrete structures, and will be called through international competitive bidding. iv) Caracol Bridge 42. This bridge across the Rio Tonto was undertaken in 1961 to link the city of Tuxtepec in Vera Cruz State to Ciudad Aleman and the port of Vera Cruz. The area is densely populated and developed. When the mission visited the bridge, the piles were precast and were scheduled to be driven in the following months. A contract for the whole construction of the bridge has been awarded, on the basis of domestic bidding. v) Papaloapan Bridge 43. This new project is located between the two towns of Papaloapan and Ciudad Aleman on the banks of the Rio Papaloapan. The developing agri- cultural area extends eastward over a large area according to a program involving a number of dams and irrigation works. The largest part of the fruit and perishable products are transported by trucks to Vera Cruz and M4exico City. On the route these products travel, the Papaloapan bridge will replace a slow and inefficient barge; it will support a two-lane road, over a total length of 344 m. The work will be awarded through international competitive bidding. d) The La Paz-M4azatlan Ferry 44. Inadequate communication with the mainland has been one of the chief impediments to the economic developrment of the peninsula of Baja California. This part of Mexico, still administered as a federal territory, needs to be integrated into the rest of the country. The development of its agricultural, fishing, and tourist resources, started only a few years ago, is progressing rapidly. The construction of a 1,150 km transpeninsular highway coming from the north has been started but will require some 20 years for completion at the rate yearly budgetary appropriations are now made.  - n1 - 45. On the other hand, the junction of the south-end of the peninsula to the continent by ferry would immediately be profitable and gives the necessary link with the continental transportation network. Therefore, the Mexican Government has been considering a ferry service between La Paz, the main city in Baja California, and Mazatlan, the nearest well-equipped port on the continental shore. The sailing distance is about 250 nautical miles. On the basis of a 16-hour crossing, the service would consist of three round- trips a week. 46. Presently, Mexico has a very limited available merchant marine and all the coastwise trade in this area is carried on four or five old converted LST's. The trips are very irregular and take at least two days one way. 47. The traffic of the port of La Paz has increased during the past few years; it totaled 130,000 T in 1961. In the Mazatlan area, an important tourist trade is also developing, a part of which will extend no doubt to Baja California as soon as an overnight trip for cars and people is possible across the Gulf. The present tourist activity in La Paz induced by air transportation is already sizeable. 48. The terminal facilities in Mazatlan will be constructed inside the present port area, which offers adequate protection against the swell and will consist of a pier with an access ramp to the ferry (bordering a parking area), various offices and toll gates. In La Paz, the present portts en- trance consists of dangerous narrows close to the bay shore. Therefore, the ferry's terminal will be located, in accordance with the suggestion of the Navy Administration, in the very deep, well protected bay of Pichilingue, a short distance east of the city. The construction of a 12 Im access road from the city of La Paz is included in the project. 49. A thorough study of the requirements and possibilities of the new ferry have been made by a qualified naval architect, who is in charge of the Ferry Division in the "Caminos y Puentes" staff, after having visited nearly a hundred ferries and shipyards throughout the world in 1960-61. Three different sizes and types of ships with a capacity of about 50, 75, and 100 cars were considered. A study of the economics and operations of each justi- fies the choice of a ship of 100-car capacity. The ship would be about 280 feet long, 49 feet wide and 15 feet draft. Available wave records show that while the swell (maximum 3.50 m) is not dangerous, rolling stabilizer fins would be advisable to avoid the necessity of a thorough fastening of vehicles on board. B. Design Standards and Specifications a) Road Standards 5o. The same design standards will be used as for the existing toll expressways. (See Table 2). They are adequate and similar to expressway design standards in other countries; in mountainous areas, the design speed  - 12 - and minimum sight distance have been reduced particularly on the two-lane road Tecamachalco-Orizaba, because of a very rough terrain. b) Bridge Standards 5l. The Bridge design standards and specifications are those of the Public Works Administration, which are generally derived from U.S. speci- fications. (See Table 3), The design loading standard on the five toll bridges is H15-S12 1/. On the five bridge projects comparative studies between different alternatives have justified the choice of prestressed concrete structures due to the size of spans which are involved, except for the mobile span on Coatzacoalcos. On this latter mixed road - railway bridge, the deck consists of two independent prestressed concrete spans supported side by side on the same piers; only the mobile steel truss will provide joint passage to both. c) Ferry Specifications 52. The ferry is to be built under the regulations and supervision of Lloyd's Register of Shipping and is to comply with the rules of the 1960 international convention for safety of life at sea, both for full ocean passenger service. 53. The capacity and the specifications (see Table 1) have been de- fined according to the amount and the nature of the expected traffic. The capacity will be 100 normal size cars with 13 square meters per car, with a clearance on the car deck of 4.20 meters in order to be able to carry all kinds of vehicles. The ship will be a bow and stern loader; the doors will be operated hydraulically and will be completely watertight. 54. The deck will be calculated to withstand concentrated loads of 10 metric tons, and in order to increase the capacity of the ship two re- tractable tween decks, hydraulically operated will be fitted at the sides. 55. The passengers' accomodations are planned for 500 passengers (50 first class and 100 tourist class state rooms, a third class protected saloon with reclining seats for 350 persons, dining room, cafeterias, all air-conditioned throughout, etc.). 56. The ship will be equipped with two slow speed diesel engines with a total power of about 6,000 H.P., giving her a speed of 17 knots, 1/ H15-S12 assumes a load of 15 short tons (13,600 kg) on the two axles of the tractor and 12 tons (10,880 kg) on the dual axles of the trailer, i.e.,,a total load of 2h,500 kg.  - 13 - 57. All the devices for improving security and maneuverability will be specified: electric hydraulic steerinC gear, traverse-tunnel and bow propeller, stablizer fins, automatic control of the watertight bow and stern doors, etc. C, Status of Engineering a) Roads and Bridges 58. The Ministry of Public Works is responsible for the planning and construction of the toll roads and bridges, through its two divisions of: i) Projects and Laboratories, and ii) Highway Construction. These two divisions are staffed with about 300 engineers and technicians. There are clear lines of authority; the organization and the quality of the staff are efficient and adequate. The laboratories, materials-testing and design sections are well-equipped, and the planning, design, execution, and super- vision of road works are satisfactory. 59. With respect to the toll roads and toll bridges included in the project all the studies and designs of works already under construction have been carried out on the basis of sound engineering standards. 60. The toll section Mexico-Puebla, started in 1959, is nearly com- pleted; actual quantities and prices are firm and a spot check made of data available in the Construction Division has shown a general increase in the original cost estimate of J0O compared to the estimate made in 1959 by the Projects Division. 61. For the remaining sections, the relevant direction lines have been staked in the field and the studies and designs are being prepared for tenders; about 80% of this work has been completed. 62. The present estimate of costs (Table 5) has been made on the basis of a cost per km of road broken down into each relevant item of work; right-of-way, earthmoving, drainage, subbase, base, pavement, fences, median strip, equipment, bridges and interchanges. In each section of the road, the figures have been estimated according to the importance and type of the earthworks involved and to the selected type of subbase, base and pavement which will be used. The unit prices used are derived from recent bids on work in the same areas, and the right-of-way cost has been estimated by its relation to the density of housing in the area where construction will take place. 63. Two additional spot checks have been made by the mission on those parts of the project where the design work is most advanced and is nearly ready for tender. In these cases the estimates based on actual computed quantities and recent bidding prices showed that the selected prices used  - 14 - per km have been conservative. As a result of this the mission believes that the cost estimates used in this report are a reliable basis for evalu- ation of the project, 64. The costs of the bridges are based on actual tenders and/or complete studies and designs. The studies have been carried out after thorough rainfall investigations and geological studies during which bor- ings were drilled at projected pier locations. The cost of Culiacan Bridge has been increased by the cost of a new access road and viaduct on the city side, which was previously to be financed out of the local budget of the City of Culiacan. b) Ferry 65. The estimate of the ferry results from various tentative free tenders sent to the Mexican Administration, without commitment, by a few American and European shipyards. Notwithstanding this, the ferry will be purchased through a new international competitive bidding. The present estimate includes in addition to the average purchase cost (US$2,870,000) an allocation to cover the various expenses for the delivery trip, insur- ances, crew's return trip, various fees and overhead. It has also been agreed that Mlexican Engineers would be assisted by competent and experi- enced consultants for supervision of the designing and construction of the ferry. The estimate of terminal facilities in La Paz and Mazatlan have been calculated on the basis of preliminary studies in these two ports. D. Cost Estimates of the Project 66. The cost of the construction works included in the present pro- ject was estimated by the "Caminos y Puentes Federales de Ingresos"t at Hex$ 700 million. In this amount is allocated 10% to cover engineering and supervision of road and bridge construction by the Public Works Department. 67. The preliminary studies and designs of the project have been thoroughly carried out (see section C above) and the cost estimates appear reasonable. Nevertheless additional contingencies should be included to cover unforeseen events such as heavy rains, slides, settlements of fills, increases in the cost of right-of-way, etc. For the above reasons, an additional physical contingency allowance of 10% has been included in the cost 1/ of the project which now amounts to I4ex3$ 772.4 million (see Table 5). 2/ This allowance has been raised up to 20% on the access road La Pera-Cuautla, where the studies are less advanced.  - 15 - 68, Since 1957, wholesale prices in Mexico have increased at an average rate of 2.75% per year, Prices of construction materials have tended to rise somewhat faster (3,75% per year), and some wage increases should be expected during the construction period. Therefore an average price increase of say 5% a year might be a reasonable expectation. In view of the fact that contracts will be negotiated over a period of time, it appears advisable to apply a price contingency factor of 5%, 10%, and 15% to expenditures in the first, second, and third years, respectively, giving a total price contingency of Mex$ 70 million. 69. On the basis of the foregoing assumptions the sumarized esti- mates would be as follows (in millions of Mex$): Total Remaining Engineer- Total Project Cost Construc- Expendi- ing Cost Cost (inc. 10% tion ture as physical Cost of Nov.l/61 contingency) Roads under construction 220.0 73?25 7.32 80.57 88.57 Bridges under construction 106,9 43.6 4,36 47,96 52.75 Other toll roads 388.0 388,0 38.80 426.80 469,50 Other toll bridges 6,0 6.o o.6o 6.60 7,20 Access roads 62,8 62,8 6.28 69,08 78.40 Perry and Terminals 54,8 54,8 2.70 57,50 63.30 Miscellaneous equipment l0p5 10.5 1.o5 11.55 12,70 Total 700.o6 772.42 Price Contingencies 70.00 Grand Total 812.42 (US$67.4 million equivalent) E. Award and Procurement Procedures 70. International competitive bidding would be used in all cases, except for: i) works on roads and bridges valued at Mex$ 145 million for which contracts have already been let on the basis of domestic bidding and  - 16 - for works done or to be done by force account, and ii) some minor works for which international competitive bidding is not practicable. The principal provisions of this procedure for the awarding of contracts to contractors of roads and bridges would be: i) Invitations for prequalification of contractors lwould be sent to all Bank member countries (and Switzerland) having diplomatic representatives in Mexico. ii) Ample time would be given for the submission of prequali- fication documents and for the submission of bids. iii) Each section of the project for which bids would be invited would cover works of a minimum value of Mex$)25 million except in cases in which the work to be done cannot reasonably be included in a contract of this size. iv) A reasonable proportion of prequalified foreign con- tractors (at least one-third of the total number of firms to be invited, which is usually about 12), would be invited to participate in each bidding. F. Local and Foreign Currency Components of Cost 71. The Ministry of Public WJorks has furnished a complete analysis of the estimated foreign currency component in all the items of work in- cluded in the various roads, bridges and the ferry in the project. The Mexican Authorities have also requested that interest during construction should be included in the requested loan which might be agreed upon since the returns from the new toll facilities will not be available until the works are completed. 72. Under the above assumptions a summary of the analysis shows the following average foreign exchange cost for the different types of work, i.e., counting depreciation on all imported equipment, spare parts, cost of steel and other imported materials and overhead of foreign contractors 1/: 1/ Foreign contractors are assumed to carry out 25% of the total contract work. The average overhead of a contractor is estimated to 8%.  - 17 - Foreign Currency Local Currency Total Amount % Amount % - - (Mex'. 000,000) - - - - - - - Roads 229.0 36.1 407.5 63.9 636.5 Bridges 24.2 40.3 35.8 59.7 60o0 Ferry 42.1 100 - - 42.1 Terminals 10.5 50 lo.6 50 21.1 Miscelaneous Equipment 12.4 98 0.3 2 12.7 Total 318.2 41.3 45h.2 58.7 772.4 Price Contingency 29.1 40.9 70.0 Interest during Construction 34.0 (i) 34.0 Total 381.3 495.1 876.4 (US'Q30.5 million equivalent) G. Phasing of Construction Expenditures and Foreign Component Cashflow 73. In the scheduled annual breakdown between the different items of works, apportioning foreign currency on the basis of the appropriate percentage to each item shows that the overall percentage of 1.3% can also be applied with less than a l% margin of error to the expenditures in each individual year, so that the foreign and local expenditure may be considered to progress proportionately. It is proposed that the withdrawal of the loan be made on a percentage basis for the projects such as roads, bridges or terminals, which are to be carried out by several contractors. Disbursement for the ferry and miscellaneous equipment (accounting devices, etc.) would be made on the basis of actual import cost. The above table indicates the relevant percentages of each type of project. The interest on the foreign currency loan during construction would also be disbursed as required. 74. Under the above assumptions the summary table following indicates in round figures the estimated annual and total requirements for the project: NOTE: (i) Interest on local currency loans is not to be capitalized.  - 18 - Nov. 1961- Dec. 1962 (14 mos.) 1963 1964 Total - - - - (Mex$ 000,000) - - - - Construction Expenditures 268 287 217 772 Price Contingency 14 29 27 70 Total Estimated Cost 322 -3 16 24 Local Currency Expenditure 166 186 143 495 Foreign Currency Expenditure 116 130 101 347 Foreign Interest-during-Construction 4 13 17 34 Total Foreign Currency Required 1=0 T1- 1165 7 US$J Equivalent of Foreign Currency Requirement (000,000) 9.6 1L.4 9.5 30.5 V. FINANCIMG OF PROJECT A. Financial Scheme 75. A tentative cashflow showing a plan for financing the project is produced in Table 7 and sunmarized below: Souirce of Funds November 1961 through 1961 (Mex4 000,000) Initial wqorking capital (current assets less current liabilities) -5 Cash from operation of toll facilities 364 Local currency loan 500 Proposed Bank loan 381 Total funds available 1,240 Investment in the project 876 Other works 10 Replacement of equipment, repairs, etc. 54 Debt service 245 Total use of funds 1,185 Working capital at end of period 55  - 19 - 76. Foreign currency expenditure in the amount of Mex; 381 million (US$ 30.5 million equivalent), including interest during construction, is assumed to be financed entirely by a proposed Bank loan. In addition the Government has given assurances that it would authorize a loan of Mex" 500 million from the Government-owned Banco Hipotecario Urbano y de Obras Publicas, which is represented on the Board of the Caminos Authority. A local currency loan of this amount has been included in the financial anal- ysis in this report. 77. The cashflow assumes that the working capital, which has been negative over the past two years and amounted to minus Mex$ 5 million as of October 31, 1961, will be raised to about Mex$ 55 million. 78. Debt service has been computed on the basis of the following indications given by the Minister of Finance: i) the present short and medium term debt to the Banco Hipotecario would be extended, so as to be repaid over six years; ii) the iAexQ 500 million Banco Hipotecario loan would have a life of 10 years (repayment is assumed to be made in equal installments from 1965 through 1971); and iii) the interest rate is likely to be 10%. The proposed Bank loan is assumed at 5-3/4% interest with a 20-year life including a 3-year grace period. Debt to be serviced also includes Mexs$ 45 million suppliers' credits repayable through 1966. 79, The cashflow assumes that no further works will be undertaken nor any additional debt incurred until 1967. Under such circumstances the Authority's projected cash resources would be used for the project and to cover debt service through 1966. Any new works undertaken in 1965 or 1966 would have to be financed entirely by borrowing, but there would be a substantial and rapidly increasing cash surplus from 1967 on, which could then be used for direct financing of further works. 80. The calculation of estimated debt service is given in Table 8. It shows that the Authority would be able to service debt of the magni- tude assumed in the calculations. During the construction period the debt service ratio would be about 1.5. It would fall to 1.1 in 1965 because of a concentration of payments in that year, but would rise afterwards to 1.3, l.4 1.8 and 2.1 in the following four years. It would reach 9 in 1972 if no further debt were incurred. Interest would be covered an average of 2.5 times over the period 1962-68, and the coverage would never fall below 1.6. B. Toll Rates and Financial Returns 81. The "Caminos y Puentes Federales Authority" has proposed to retain on the various facilities a table of tolls and fares adjusted to the nature of traffic and the operating cost on the roads. The toll would av- erage about US