Mexico - Lazaro Cardenas Industrial Ports Project

Document of The World Bank FOR OFF1CLAL USE ONLY Report No. 13280 PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (LOAN 2450-ME) JIUNE 29, 1994 Country Department II Latin America and the Caribbean Region This document has a restricted distribution and may be used bv recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Abbreviations BANOBRAS - National Bank of Public Works and Services BANPESCA - National Bank of Fishing and Ports CELASA - Drilling Platform Manufacture Company CONASUPO - National Council of Popular Subsistence CGPPI - General Coordination of Industrial Port Projects CNCP - National Port Coordination Commission DGCF - Directorate General for Federal Roads DGGI - Directorate General for Irrigation Works DGOM - Directorate General for Marine Works DGOPD - Directorate General for Port Operation and Development DGP - Directorate General for Planning DGVF - Directorate General for Railway Infrastructure ESP - Port Service Company FERTIMEX - Fertilizantes Mexicanos, S.A. FIDELAC - Trust Fund for Lazaro Cardenas FONDEPORT - National Fund for Port Development PUERTOMEX (PM) Puertos Mexicanos PMT - Productos Mexicanos de Tuberias, S.A. SAHOP - Secretariat for Human Settlements and Public Works SARH - Secretariat for Agriculture and Hydraulic Resources SCT - Secretariat for Communications and Transport SEDUE - Secretariat for Urban Development and Environment SICARTSA - Siderurgica Lazaro Cardenas--Las Truchas SPP - Secretariat for Programming and Budgeting TUM - Multiple Use Terminal  FOR OFFICIAL USE ONLY MEXICO PROJECT COMPLETION REPORT LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (Loan 2450-ME) Currency Equivalent Currency Unit = Peso (Mex$) US 1.00 = Mex$ 25 in Decemberl981 = Mex$ 150 in December 1983 = Mex$ 168 in December 1984 = Mex$ 257 in December 1985 = Mex$ 612 in December 1986 = Mex$ 1378 in December 1987 = Mex$ 2273 in December 1988 = Mex$ 2461 in December 1989 = Mex$ 2813 in December 1990 = Mex$ 3018 in December 1991 = Mex$ 3100 in December 1992 Fiscal Year January 1 - December 31 Weights and Measures Metric: British/US Equivalent 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.20 pounds (lb) 1 metric ton (m ton) = 2,205 pounds (lb) 1 liter (1) = 0.27 gallon (gal) 1 hectare (ha) = 2.47 acres This document has a restricted distribution and may be used by recipients only in the performance of their lofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.   FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 29, 1994 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Mexico Lazaro Cardenas Industrial Port Project (Loan 2450-ME) Attached is the "Project Completion Report on Mexico - Lazaro Cardenas Industrial Port Project (Loan 2450-ME)" prepared by the Infrastructure Operations Division, Country Department 2, of the Latin America and Caribbean Regional Office, with the Borrower providing Part II. The project was implemented with some delay and about half of the loan was canceled in the end. This was due, inter alia, to the impact of the 1985 earthquake and tidal wave in the project area as well as the considerable tightening of the budgetary constraints in Mexico during the second half of the 1980s. Nevertheless, the principal objectives of the project - improve the port's facilities, augment its capacity, and improve its administration and finances - were largely achieved. Actual port traffic was considerably higher than anticipated at appraisal and the economic reevaluation of the project shows a satisfactory 18% rate of return. On the other hand, the environmental part of the project was not satisfactorily completed, mainly because of unclear responsibilities, a continuing lack of interest in and emphasis on environmental matters by those in power, and because of the budgetary problems. Loan covenants were complied with except for those related to the availability of local funds. The project's outcome is rated as satisfactory, its sustainability as likely and its institutional development impact as modest. The PCR's quality is satisfactory. No audit is planned. Robert Picciotto by H. Eberhard K6pp Attachment 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.   PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (LOAN 2450-ME) TABLE OF CONTENTS Page No. PREFACE ............................................. i EVALUATION SUMMARY ................................. ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .... ....... 1 Project Identity . ......................................... 1 Background ............................................ 1 Project Objectives and Description .............................. 2 Project Design and Organization ............................... 3 Project Implementation . ..................................... 4 Project Results . ......................................... 8 Sustainability ............................. ....... . . 11 Bank Performance ........................................ 11 Borrower Performance ..................... 12 Project Relationships ..................... 12 Consulting Services ..................... 12 Project Documentation and Data ..................... 12 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ..... 14 Introduction ............................................ 14 Description of the Project and its Modifications ...................... 14 Substitution of Government Financial Agent ........................ 15 Opinion and Lessons Learned .................................. 16 PART III: STATISTICAL DATA ............................. 19 TABLE 1: Related Bank Loans ............................... 19 TABLE 2: Project Timetable ................................ 19 TABLE 3: Comparison Between Appraisal Estimates and Actual Costs ... ... 20 TABLE 3A: Comparison Between Appraisal and Actual Financing Plan ...... 21 TABLE 4: Estimated and Actual Schedule of Disbursement ............. 22 TABLE 5: Compliance with Loan Covenants ...................... 23 TABLE 6: ESP's Revenue and Expenditure Statements ............... 26 TABLE 7A: Use of Bank Resources (Staff Inputs) ...... .. .......... 27  2 TABLE 7B: Mission Data .... I.. I................ . 28 TABLE 8: Economic Re-evaluation ......................... 31 TABLE 8A: Economic Re-evaluation ......................... 32 TABLE 9: Port Traffic ......................... 33 TABLE 9A: Port Traffic - Diagram ......................... 34 MAP: IBRD 17795 - Lazaro Cardenas Industrial Port Project and Master Plan [BRD 17797 - Transportation Network and Industrial Port Locations  ii PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (LOAN 2450-ME) PREFACE This is the Project Completion Report (PCR) for the Lazaro Cardenas Industrial Ports Project, for which Loan 2450-ME in the amount of $76.3 million was approved on June 21, 1984. The loan was closed on December 31, 1992, two years behind schedule. $38.25 million of the loan was disbursed and $38.05 million cancelled. The PCR was prepared by the Infrastructure and Operations Division of the Latin America and the Caribbean Country Department II (Preface, Evaluation Summary and Parts I and III). In August 1993 the Borrower sent a brief PCR which is included in Part If (Project Review from Borrower's Perspective). In November 1993 and January 1994 the Borrower sent cost and other supporting data which were important inputs in the preparation of the report. The draft PCR was sent to the Borrower on March 7, 1994, but no further comments have been received from the Borrower. Work on the preparation of this PCR was started during the Bank's final supervision mission in June, 1992. This PCR is based, inter alia, on the Staff Appraisal Report, the Loan and Guarantee Agreements, Supervision Reports, correspondence between the Bank and the Borrower, internal Bank Memoranda, reports/data received from the Borrower, and information available from the Project files.   iii PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (LOAN 2450-ME) EVALUATION SUMMARY Obiectives (i) The main objectives of this project, the improvement of transport facilities to the Lazaro Cardenas Port, the augmentation of the port capacity by the addition of critical port handling equipment, and the improvement of the port administration and finances were largely achieved, although on a somewhat less ambitions scale than originally perceived. The Technical Assistance provided under this project helped define the long term plan for the ports and the framework for the restructuring of the Port System which was followed up in the Port Rehabilitation Project (Loan 2946-ME). Implementation and Results (ii) There were substantial delays and important changes during the implementation of the project. Soon after the start of the project, the earthquake of September 1985 caused considerable damage to the port infrastructure in Lazaro Cardenas which necessitated the inclusion of several repair and reconstruction works to the terminals, services and transport facilities in the port area as well as some shore protection works (para. 5.04). Further amendments to the project became necessary in the following years due to the deterioration of the Mexican economy, resulting in budgetary cuts and the imposition of "techos" or ceilings on investments (para. 5.05) which slowed project execution. As a result the loan closing date had to be extended twice, for a total of two years. (iii) A major component of the project, the maritime access works consisting mainly of dredging works was not implemented (para. 5.10) primarily because interest in the waterfront land at Lazaro Cardenas did not materialize as expected, and in any case financial stringency relegated this item to the lowest priority. The flood protection works were only partly done (these were completed in the following project). As regards the environmental protection works, which were aimed at controlling the problems caused by municipal and industrial wastes, the former was effectively tackled, whereas the latter was not, largely due to the indecisiveness of the government which did not as yet have clearly defined environmental policies or plans. In addition, a consultant's study concluded that whereas the Municipal Waste Management Plan had been well developed and should be implemented straightaway, the proposed hazardous waste facility should be put aside until there was demonstrated need for the proposed system (paras. 5.07 and 5.09). As a result, the overall cost of the project was $57.8 million against the Appraisal estimate of $112.5 million and only $38.25 million out of the loan of $76.3 million was utilized.  iv (iv) However, despite the curtailment of the project the most essential parts of the project comprising the rail access to the port, the equipment for improving the port handling facilities, a part of the industrial park, the flood control works and the technical assistance were implemented. The economic re-evaluation of the project yields an ERR of 19% against 23 % forecast at appraisal. Through the period of implementation of this project, port organization improved significantly (para. 9.01) and the financial targets set in the loan agreement were achieved. Sustainabilitv (v) The implementation of the project that was reduced to its essentials, the general improvements in the ports subsector and the follow-up by the Ports Rehabilitation Project (Loan 2946-ME) will, it is expected, ensure the sustainability of the project. FmdinLs and Lessons Learned (vi) The main feature of this project is that it was appraised during a period of economic growth and great optimism, but was implemented in an environment of considerable economic austery and financial stringency resulting mainly from the fall of petroleum prices. The earthquake of 1985 not only caused considerable damage, introducing new project components to repair the earthquake damage, but also diminished the need for a major project component, the maritime works (para 5.04). Due to these reasons the project was substantially curtailed during its implementation, and took two years more than planned at appraisal. (vii) Although at first glance this project does not appear to have been successful because important parts of it were not implemented, closer examination reveals that despite the curtailment of the project cost by nearly 50 % and the elimination of several components, the project's core was maintained, and the principal objectives of the project were largely achieved, although on a less ambitions scale than originallv planned. The financial situation of the port improved as also did the productivity of the cargo-handling (paras. 5.08 and 6.02) (viii) This was a complicated project which involved several government departments, and a diverse group of industries and other agencies. Although the Bank had been preoccupied from the start about the organizational and management aspects of the project, the arrangements, as they developed, (para. 4.01 to 4.03) continued to present difficulties until the emergence of Puertos Mexicanos (PM) and the transfer of the Borrower's responsibilities to BANOBRAS (para. 5.08) (ix) In conclusion, although the Project underwent important changes due to the Earthquake of 1985, and to the macro-economic difficulties in Mexico, the core of the project was maintained and the principal objectives of the project were achieved. In addition, a substantial improvement in the institutional infrastructure of the ports took place during the project's implementation period.  I PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS INDUSTRIAL PORTS PROJECT (LOAN 2450-ME) pART I PROJECT REVIEW FROM BANK'S PERSPECTIVE 1. Proiect Identity Project Name: Lazaro Cardenas Industrial Ports Project Loan Number: 2450-ME Loan Amount: US$76.3 million Project Cost on Approval: US$112.3 million Actual Project Cost: US$57.8 million RVP Unit: Latin America and Caribbean Region Country: Mexico Sector: Transport Subsector: Ports II. Background 2.01 Mexico's deep-rooted structural problems were accentuated during the high growth period of the mid to late 1970s, the economic crisis of 1982 and the subsequent recession. Social and economic problems included widespread poverty, a skewed distribution of income and wealth, unemployment and major urban and regional imbalances. The Industrial Ports Program which this project supported was formulated in 1978 in response to the problem of regional income disparities. Mexico's policy makers were concerned that if the trend towards concentration of population and economic activity in Mexico City and the Central region continued, the regional distortions would exacerbate social imbalances and the already difficult urban problems in the metropolitan area of Mexico City such as the acute water supply problem, pollution and traffic. In addition the growing cost of urban services would gradually become unmanageable. The Government therefore took a series of steps towards the definition of a national spatial development policy which was embodied in the National Urban Development Plan (1978). 2.02 The Industrial Ports Program was an important element of the overall government strategy to relocate population growth, employment and industrial development away from the central plateau to the coastal areas. In addition, the program aimed at improving the national transport infrastructure, expanding the industrial base, and the promotion of exports. The public sector's role centered on the development of infrastructure including industrial parks and multiple use port facilities at various industrial ports which would allow industry to take advantage of direct access to maritime transport. The Industrial Ports Program was given high priority in Mexico's public sector investment program and included the industrial ports of Lazaro  2 Cardenas and Salina Cruz on the Pacific Coast, and Altamira and Laguna de Ostion on the Gulf Coast. Between 1979 and 1983 a total of $755 million-was invested under the program at these sites of which 37% went to Lazaro Cardenas and 34% to Altamira. 2.03 The conduct of work related to these rather substantial investments revealed the complex nature of the institutional arrangements for the Industrial Ports Program, involving a large number of government departments as well as problems relating to port capacity, road and rail accesses, environment, flood control, etc. The Bank had been active in supporting the Government's regional decentralization and industrial development programs and was especially involved in the initial development of the Lazaro Cardenas area through operations to support the Sicartsa Steel Plant (Loan 934-ME), the Fertimex Fertilizer Plant (Loan 1112-ME) and an Urban Project (Loan 1554-ME). The first Port project (Loan 820-ME) for the port sector was made in 1972 to improve port operations and to introduce a commercial approach to tariffs and services. The Port Development Preparation Project financed by a loan of $14.0 million (1964- ME) was made in 1981 to assist the National Ports Co-ordinating Commission (CNCP) in the pre-investment work of the industrial port development project through the provision of planning and management services in project formulation and through studies and detailed engineering for individual project components in the ports program. This work provided the basis for the Industrial Ports Project and for a part of the subsequent one. III. Project Obiectives and DescriDtion Project Objectives 3.01 The principal objectives of Bank, support for the Ta.zaro Cardenas Industrial Ports Program were to: (a) improve transport facilities for industries through improved maritime access and coastal shipping; (b) encourage economic growth in the under-developed coastal regions; (c) augment the country's port capacity and reduce dependence on foreign ports as the country diversified its international trade; and (d) improve port administration and finances. In addition, by supporting the ongoing port development program, the Bank sought to introduce improvements in investment analysis and project defuiition and to assist in the institutional and financial development of the port service enterprises. 3.02 More specifically the project aimed to increase the efficiency of the port terminal at Lazaro Cardenas, to strengthen the administration and finances of the industrial port, to improve transport for the industries existing or those under development, to reduce environmental hazards, and to provide protection from flood damage.  3 Project Description 3.03 The project as originally appraised comprised the following components in the Lazaro Cardenas Port and its industrial park area: (a) Construction of a paved highway (7.5 km) to connect the Fertimex and the multiple-use terminal to the existing road system, as well as 8.5 km of rail lines to interconnect plants and terminals in the project area; (b) dredging works for the improvement of maritime access to the port terminals and industrial facilities, and flood protection works on the left branch of the River Balsas; (c) Acquisition of machinery and cargo-handling equipment for the port including forklift trucks, tractors, trailers, cranes, pallets, toplifters and communications equipment; (d) Construction of a tug boat including the acquisition of the required propulsion and navigational equipment; (e) Setting up an Industrial Park for small and medium-sized industry; environmental protection works and facilities including waste water collection and treatment system for the National Fund for Port Development (FONDEPORI) and facilities for the collection, processing and disposal of solid wastes in the project area; and (f) Technical Assistance for the supervision of the project and for training of port personnel in port administration, operation and maintenance, feasibility studies, preparation of engineering designs for the project, and studies on cost-related port dues as well as the costs and tariff levels of the Port Service Company (ESP). 3.04 The total estimated cost of the project including contingencies was about US$112.7 million. The expected foreign exchange component was about US$76.3 million which was proposed to be fmanced by the Bank loan. The Mexican Government (including ESP and Fondeport internally generated funds) would finance the local costs equivalent to $36.4 million. IV. Proiect Design and Organization 4.01 The project was to be implemented by the various agencies responsible for the design and maintenance of individual project components, with overall coordination by the SCT. This procedure was similar to that used in the earlier stages of the industrial ports program (1979- 1983), and had as its rationale the continuity of responsibility with the same agency, from the design and bidding stages, contracting and supervision of constriction, to final acceptance and operation/maintenance. Although the roles of the involved institutions were clearly defined, the complexities of interagency coordination led to implementation difficulties. 4.02 The Industrial Port Program Commission (CGPPI) which was made up of representatives of SCT, SARH, SEDUE, FONDEPORT, CNCP and SPP was charged with overall policy- making and coordination for the Industrial Ports Program. Project Coordination was entrusted  4 to a monitoring group within this commission which included representatives of SCT, SARH, SEDUE as well as CNCP, SPP and BANPESCA, with the SCT taking the lead responsibility within the group. A project coordinator was appointed at Laaro Cardenas to oversee supervision of all works. 4.03 BANPESCA was the Borrower and was expected to transfer project funds between the Bank and the executing agencies for which purpose it entered into supplementary agreements with ESP, FONDEPORT and the Government for on-lending of project funds on the same terms and conditions as those between the Bank and BANPESCA. Procurement of Bank financed goods and services was to be arranged in accordance with the Bank's Guidelines for procurement. 4.04 The project was slated for completion in December 31, 1990. V. Project Inplementation Loan Effectiveness and Project Start-up 5.01 The project was appraised in September-October 1983, negotiated in May 1984 (after two post appraisal missions) and was approved by the Board in June 1984. The Loan Agreement was signed on September 21, 1984 and became effective after nearly six months on March 8, 1985. The main cause of the delay was that the studies on the administration, commercialization and promotion of FONDEPORT, the satisfactory completion of which was an essential condition for loan effectiveness, were considered inadequate by the Bank. The Bank detailed its comments on the analysis and recommendations of the studies, and the loan was declared effective only when further work and substantial revisions corrected these deficiencies. Problems also arose in regard to the flood control works and the maritime access works. SARH proposed a change in the design standards for the flood control works as it was now considered that designing the works for a flow of 10,000 cubic meters per second (instead of 7,000 cubic meters per second at appraisal) would assure significantly greater protection at only 5 % additional cost. In the maritime access works, CNCP and Obras Maritimas had not yet prepared the economic justification of the dredging works as agreed at negotiations. In addition, there was delay in the negotiation of cost recovery arrangements with the beneficiaries. 5.02 Soon after the loan became effective, the Supervision Mission (April 1985) reported that some aspects of the project were progressing well. The rail access to the CONASUPO grain silos was 80% complete. Work on the industrial park was fairly advanced. However, traffic levels were substantially lower than forecast due to the economic recession, which slowed down the port equipment program. On the institutional front, FONDEPORT had broadened the organization of the Lazaro Cardenas Delegation to include administrative financial and accounting functions. Both the National Port Study and the ESP's cost and tariff studies were nearing completion. 5.03 A Bank consultant reviewed the results of the mathematical model and the modified design for the flood control works and approved the revised figure of 10,000 cubic meters per second for the design basis. However, four problems started to emerge in the project implementation. Two of these problems relating to access roads and flood control resulted from budgetary constraints on local funds. The maritime access dredging works were delayed as  5 CELASA started negotiations to utilize alternative sites for which dredging would not be required. And ESP delayed and then reduced its procurement of cargo-handling equipment because of lower than expected container traffic. Project Changes 5.04 The first modification of the Loan Agreement was made on February 1, 1985 to open the Special Account in Dollars with the Bank of Mexico to facilitate disbursements from the loan. The second modification of the project was caused by an earthquake in September 1985 with its epicenter only 10 km from Lazaro Cardenas, which caused considerable damage to the Multiple Use Terminal (TUM), the grain terminal and the water supply system of Fertimex. A portion of the road and rail access to the TUM was destroyed by the 'tsunami" (tidal wave) caused by the earthquake. This resulted in the diversion of the grain ships to Manzanillo. The tsunami also destroyed the embankment for the roadway to Fertimex and alerted the authorities to the vulnerability of the land transportation and utility corridor between the shore line and the Sicartsa steel works. The cost of the repairs and strengthening works related to the earthquake damage to the road and rail access to the port, the TUM, the grain terminal and the water supply system to Fertimex was estimated at about $21 million at the then exchange rate of 326 pesos= iUS$, and it was proposed to finance these works by re-allocation of funds assigned to the equipment and maritime access components. The decision was based on an analysis of the evolving needs of the project. Indeed the Earthquake's effect was two-fold. The obvious damage to the terminals buildings and systems was taken care of by the alterations to the project. The more insidious effect, however, of the earthquake was that it shook the confidence of the people, convincing them that [azaro Cardenas was not a good place to settle in. The Japanese who were important investors in the Port Zone pulled out rather fast, discouraging other potential investors. CELASA, a petrochemical complex, a ship-yard and other potential waterfront industries who had been negotiating for sites developed cold feet and withdrew. Although FONDEPORT did manage to lease most of its sites on the Small Industries park where smaller investments, mainly by local firms were required, none of the larger water front industries materialized thus obviating the need for large dredging works, investments which were to be recovered from the industries themselves. The Earthquake thus indirectly contributed to the cancellation of a major component of the project (para 5.10). The damage to the Zihuatanejo-Manzanillo-Altamira roads was taken care of under the Highway Rehabilitation and Safety Project (Loan 3628-ME). An Amendment to the Loan and Guarantee Agreements was signed on January 15, 1986, to reallocate the funds needed to provide for the reconstruction and rehabilitation of parts of the port of Lazaro Cardenas damaged by the earthquake of September 1985 by creating two new parts (F and G) of the project as follows: Part F: Repair and rehabilitation of earthquake damage to (i) the port's road and rail access; (ii) the grain terminal; (iii) wharf structures and port auxiliary buildings; and (iv) aqueduct and wells providing water supply to Fertimex. Part G: About 12 km of shore protection works west of the port's West breakwater. 5.05 In August 1986 a Special Account was established to disburse the proceeds of withdrawals under several loans of the World Bank to Mexico, including Loan 2450-ME to BANPESCA. Further amendments of the project became necessary due to the deterioration of  6 the Mexican economy during these years, resulting in budgetary cuts and the imposition of 'techos" or ceilings on public investments. Those restrictions slowed the project down, and the Mexican Government sought the cancellation of $20 million out of the loan amount. This was agreed by an amendment to the Loan and Guarantee Agreements on March 18, 1988. An amendment on September 29, 1989 cancelled another $18.05 million to reduce the loan amount to $38.25 million. The year 1989 also witnessed the substitution of the Government's financial agent BANPESCA by the Banco Nacional de Obras y Servicios Publicos (BANOBRAS), whereby BANOBRAS took over all the rights and obligations of BANPESCA. A formal Loan Assumption Agreement was signed on March 8, 1991 to transfer the loan from BANPESCA to BANOBRAS, together with a Supplemental Guarantee Agreement between the World Bank and the Mexican Government to recognize this transfer. To take care of the delays in project execution, the closing date of the loan, December 31, 1990, was postponed twice, first to December 31, 1991 and finally to December 31, 1992. Project Execution 5.06 When the Bank mission visited Mexico in April 1986 the most disruptive damage from the earthquake, the displacement of the rail access to the TUM had been repaired, and repairs to the highway bridge across the right branch of the Rio Balsas and the grain terminal were under way. The water supply system for the Fertimex had been repaired and the first stage of the Rio Balsas river-training project was to be completed in the following month. However shortage of local funds was affecting the start up and progress of several works. Meanwhile the Bank had started looking at the needs of other ports, and approved diagnostic studies, largely to be undertaken by local consultants for the ports of Tampico, Altamira, Mezquital, Cozumel, Morelos, Playa del Carmen, Progresso, Zihuatanejo, Acapulco, Lazaro Cardenas, Manzanillo, Mazatlan Topolobampo, Guaymas, Ensenada, Tuxpan, Veracruz and Coatzacoalcos. These studies were organized by six main groups, each of which was awarded to a local consultant familiar with the area. The recommendations of these studies would contribute to a review and amendment of investment plans for the following project. 5.07 In December 1986 a review of the solid waste studies by Consultants concluded that the Municipal Solid Waste Management plan which had been a subject of some controversy had been well developed, and should be implemented straight away. It was however recommended that the proposed hazardous waste facility should be put aside until there was demonstrated need for the proposed system. 5.08 The year 1987 brought an upsurge in overall traffic which closely approximated figures forecast at appraisal. Furthermore, as tariffs were adjusted upwards, the financial position of the port improved. However the pace of work continued to be slow and disbursements up to the end of the year 1988 remained at about $15 million. Traffic rise continued for a second year in 1988 by 7.2% over the previous year, with import traffic increasing nearly four-fold. The productivity of the dock-side labor also increased which together with the substantial traffic increases caused the company's working ratio to improve from 84 in 1987 to 81 in 1988. The government also increased its equity holdings in the port operating company through financing investments in new equipment used for improving the port operations. In 1989 traffic again increased significantly, with an overall increase of 26% over 1988. After having its tariffs frozen for the whole of 1988, the Government authorization in January 1989 of an "across-the- board" tariff adjustment of 40 % plus the traffic increases gave ESP a considerable improvement  7 in its financial situation, improving the operating ratio from 115 in 1988 to 86 in 1989 and the working ratio from 81 in 1988 to 61 in 1989. With the establishment of Puertos Mexicanos (PUERTOMEX) in March 1989 as a new central authority for all of Mexico's ports, the local offices of the former Direcci6n General de Puertos and those of the Direcci6n General de Obras Maritimas were consolidated into the somewhat smaller local office of PUERTOMEX and PUERTOMEX signed a program contract with ESP containing operational, maintenance, financial and administrative goals for the following years in accordance with the Loan agreement with the Bank. In 1989, Lazaro Cardenas generated surplus revenues of almost $1 million. 5.09 The environmental components of the project, however, did not proceed too well. The Bank expressed its concern to BANOBRAS and the Mexican Government on the inadequate attention paid to the environmental components of the project in relation to the sewage treatment plants, the solid waste disposal sites and the monitoring of air quality in the vicinity of the industrial plants. More specifically, whereas the municipal waste management program was successfully completed, attention to the industrial wastes and air-quality program remained inadequate. The environmental part of the project was not satisfactorily completed, mainly because of unclear responsibilities, a continuing lack of interest and emphasis on environmental matters by those in power, and of course the budgetary problems. 5.10 As far as the maritime access works are concerned doubts arose early during the implementation of the project because interest in the industrial waterfront land at Lazaro Cardenas was not materializing (para 5.04). This was reflected not only by the borrower's inability to prepare a viable economic justification for the dredging works as agreed at negotiations but also in a lack of progress in the negotiations with the beneficiaries for the cost recovery arrangements. Finally the estimated $29.8 million allocation for the maritime access works remained unutilized, although a part of this amount was reallocated for the repair works resulting from the earthquake of 1985 (para 5.04). Project Costs 5.11 Analysis of the project costs was difficult not only due to the relatively high and fluctuating inflation rates but also because the parity between the dollar and the Mexican peso fluctuated greatly during the project years. A comparison between the Appraisal estimates and the actual costs is given in Table 3 (Part III). The estimated and actual Financing Plan is given in Table 3A. The actual cost of the Project at $57.87 million was substantially (48.5 %) lower than the Appraisal estimate of $112.5 million largely because of changes in project scope. Major reductions occurred in the maritime access works as the dredging program was not implemented, not only because there was little interest in the industrial waterfront land (paras. 5.04 and 5.10) but also because these works were not considered essential in the light of the scarcity of funds and budgetary restrictions. The budgetary restrictions also slowed down the flood control works (along the Rio Balsas river) eventually leading to a substantial reduction in the amount invested to $18.5 million instead of $27.0 million foreseen at Appraisal. Additional civil works at the port of Topolobampo cost $12.3 million, but the overall cost of the project at $57.87 million remained well below the Appraisal estimate of $112.5 million. 5.12 Overall, local costs of the project were $19.62 million instead of $36.4 million estimated at appraisal, and the foreign exchange costs were $38.25 million instead of $76.3 million foreseen. $38.05 million, i.e. 50% of the Bank loan of $76.3 million was cancelled.  8 5.13 Summarizing, the main features of the project implementation were as follows: (a) the project was actually completed in 1992 instead of 1990; (b) project implementation delays occurred due to necessary changes in project content, brought about initially by the earthquake of 1985, and later by paucity of counterpart funds caused by budget restrictions; (c) the estimated expenditure of $29.8 million in maritime access works appears to have been based on over-optimistic expectations with regard to the demand for industrial waterfront land, which did not materialize. Disbursements 5.14 Table 4 (Part III) gives the position of the estimated and actual Schedule of Disbursements. Disbursements actually started in the quarter ending March 31 of FY 85 as against the Appraisal estimated start a few months earlier, and by the end of FY 85 $7.45 million were disbursed against the Appraisal target of $5.8 million. However, in the following year disbursements really slowed down because of the earthquake damage and the changes in the project, and by the end of FY 86, the cumulative total of disbursements was only $9.86 million against $28.3 million estimated. Thereafter, the rate of disbursements remained slow, and by the original closing date of the loan (December 1990) only $19.49 million were disbursed out of a total of $76.3 million. Two extensions of the loan were given, extending the loan closing date to December 1992 when $38.25 million was disbursed and $38.05 million out of the original loan of $76.3 million was cancelled (para 5.05). VI. Proiect Results Project Objectives 6.01 The principal objectives of this project i.e. to imnprove the transport facilities to the Lazaro Cardenas Industrial Port, to augment its port capacity and to improve the port administration and finances were largely achieved. Having said this, however, it is important to note that a significant part of this project as originally conceived remained undone, partly because it was not considered essential and partly because funds were not available. Indeed this has been the fate of more than one project in Mexico that was conceived in the euphoria and optimism of the early eighties when Mexico was flush with petro-dollars and planned expansive projects, which had to be drastically trimmed, when petroleum prices fell and the country's economy went into reverse. However, despite the changes in the project, the rail access to the port was improved. The acquisition of equipment for improving the port handling facilities was delayed due to poor traffic but was later implemented when port traffic rebounded from 1987 onwards. Through the period of implementation of this project, port organization improved significantly (para. 5.08) and the financial targets set in the loan agreement were more than achieved (para. 6.03), and the economic re-evaluation shows reasonably satisfactory results (para. 6.08)  9 6.02 Although the Industrial Ports Program was an important element of the overly ambitious government strategy to relocate population employment and industrial development away from the central plateau to the coastal areas (para 2.02), this program was almost completely halted when the economy of Mexico de.eriorated due to curtailment oIf oil revenues, and the there were ensuing cuts in public expenditures. As a result, the long-t.rm goals of the Government with regard to spatial decentralization were abandoned due to macro-economic difficulties. Port Traffic 6.03 The volume of traffic moving through Lazaro Cardenas port in 1984 was only 63% of the SAR forecast. The damage caused by the 1985 earthquake further delayed the port's capacity to attain much higher outputs. Yet by 1989, with the aid of project investment in equipment and infrastructure repairs, the total annual volume was 3.6 million tons of cargo (including 219,000 tons of containerized general cargo) - figures 18% and 17% respectively higher than the volumes forecast in the SAR (see table 9 and diagram 9a). The investments made in the infrastructure improvement and port-handling facilities in Lazaro Cardenas were, therefore, largely justified. Fmancial Performance 6.04 There were three separate financial entities involved in the execution of the project: (i) the port operating enterprise (ESP), constituted as a commercial company, with appropriate accounting and financial reports, a summary of which is presented in table 6 for the relevant years, (ii) a government agency responsible for port infrastructure (DGOP), with a budgetary reporting system, and (iii) a nationwide port lands development company (FONDEPORT), with central accounting in Mexico City, but no separate branch accounts in Lazaro Cardenas. In March of 1989, Puertos Mexicanos, a central, semi-autonomous agency was formed and absorbed DGOP's functions. 6.05 Whereas tariffs for specific services constitute the revenue of the ESP, revenues from port dues, wharfage and storage were collected by DGOP and subsequently by P.M. as returns on infrastructure investments and for central administration costs. FONDEPORT's revenues derive from lease, or sale, of lands and buildings. 6.06 Despite the earthquake of 1985, whose epicenter was very close to Lazaro Cardenas and therefore caused considerable damage to the port (para. 5.04), the port operations recovered  10 rapidly, cargo targets were achieved and the financial ratios of the ESP by 1989 were better than the targeted ones for that year, as may be seen in the following comparative table of ratios: 1984 1985 ] 1986 1987 1988 1 1989 RATIOS ACHIEVED Working Ratio |1.04 0.95 0.74 0.84 0.81 0.61 Operating Ratio 1.09 1.0 0.97 0.99 1.15 0.81 TARGET RATIOS Working Ratio 1.11 0.97 0.87 0.71 0.63 0.62 Operating Ratio | 1.45 1.42 1.27 1.02 0.86 0.84 6.07 As for Puertos Mexicanos, revenues from port dues always exceeded administrative costs and current investment outlays for Lazaro Cardenas itself, although never fully recovering capital costs on infrastructure investments. The cash surplus thus created went to P.M and was redistributed to other ports. 6.08 FONDEPORT is a nation wide organization and maintains its accounts on a country wide basis. It did not set up a separate accounting system for the Lazaro Cardenas Industrial Port. The Industrial Park (small and medium industries) in L.C was however fully leased and FONDEPORT has remained financially solvent since 1985 awards except for the year 1989. Economic Re-evaluation 6.09 At appraisal, the project components separately and jointly evaluated were: a) road access; b) rail access; c) cargo handling equipment; d) maritime access; e) a tug; f) the industrial park for small industry, and g) flood protection. However, components (a) and (d) were not executed; the road access was not constructed, because the 1985 earthquake and accompanying Tsunami had destroyed the sea defenses and the railway line following the same coastal route proposed for the access road. As there is a serious danger of the proposed roadway being washed away if prior measures to contain the sea are not taken, the construction of the access road was postponed. Until effective protective measures are taken to avoid the renewed encroachment of the sea, traffic to the port continues to traverse the city and the SICARTSA docks as it did before; the sea access component (dredging access channels and docks for new industries) did not materialize because there was no such demand (para. 5.04) during the period of project execution.  I1 6.10 Using the same methodology used at Appraisal for the project components actually executed, the following are the recalculated rates of economic return: Re-evaluated: SAR Rail access: 15% 17% Port Equipment: Containers ---- + 15 % General Cargo -+- 18% 23% Tug + 17% Flood protection N.A 23% Industrial Park 26% 23% Over-all I.R.R. 18% 23% Details of the economic reevaluation are given in Table 8. 6.11 The return on the rail access is considerably reduced because of the postponements of the benefits caused by the collapse during the earthquake of the machinery tower of the silos and the total destruction of the grain unloaders. This has required a major reconstruction and the acquisition of a new discharging system, creating a delay of about four years, in generating grain cargo for the railway. VII. Sustainabilitv 7.01 Although this project was implemented during a difficult period of considerable economic adjustment, the essential components of the project were executed. This, coupled with the fact that the project, after a slow start was generally well implemented will enable over time the realization and maintenance of the projected benefits of the project. The work started on this project for updating the country's port network and for the improvement of sector planning is being continued in the follow-up project (Ports Rehabilitation Project - Loan 2946-ME). VIII. Bank Perfonnance 8.01 The Bank spent 138 staffweeks to prepare and appraise this project, including 251 man- days in the field (Tables 7A and 7B). A total of 135 staffweeks was spent on supervision, including 354 man-days in the field. This was therefore a carefully prepared project which was subsequently well-monitored. However, the project experienced significant difficulties (para. 5.04) to which the Bank responded quickly, including the Earthquake of 1985 and the substantial curtailment of the project which ensued when changing economic conditions put a squeeze on Mexico's resources. Indeed the aggravation of the country's economic situation following the drop in petroleum prices is something that could hardly have been foreseen at the time of appraisal. What is significant, however, is that when circumstances changed and Mexico was forced to curtail its investments, the Bank responded by assisting in reducing the investments to the minimum essentials required. As a result, the project that was implemented was considerably leaner than the project appraised, and one that was certainly more meaningful under the changed economic circumstances.  12 [X. Borrower Performance 9.01 The three principal participants in the project were the Federal Government, the Lazaro Cardenas Empressa Servicios de Puertos (ESP) and FONDEPORT (Fondo Nacional para Desarollo de los Puertos). The Bank loan was channelled through BANPESCA (Banco Nacional Pesquero y Portuario). The project organization (Chapter [V) was at best diffused, with the project coordination entrusted to a monitoring group comprising of representatives of the several disparate agencies involved in the project. This monitoring group had representatives of SCT, SARH, SEDUE, CNCP, SPP and BANPESCA, with the leadership entrusted to SCT, a responsibility which the SCT apparently discharged well in policy matters, but not particularly effectively in regard to the day-to-day execution of the project. Progress of the project was often slowed by delays. With the creation in 1989 of Puertos Mexicanos (PM) (para. 5.08) amalgamating in one unit the different agencies of the Port subsector, the coordination of the project work improved notably, and in particular the interface with the World Bank was strengthened substantially. The change over of the Government's financing agent from BANPESCA to BANOBRAS also led to an improvement in the quality of project management and follow-up as BANOBRAS had better channels of communication with the Bank, having had considerable experience of World Bank financed loans in the past. The inadequate implementation of the environmnental component (para 5.09) of the project is indicative of some of the problems of co-ordination between the different agencies involved, but was caused far more by indecisiveness at the higher levels of the government on environrmental issues as SEDUE had not yet developed clear-cut policies and action plans for the clean up of industrial waste and other pollution mitigation measures. X. Proiect Relationships 10.01 Bank relationships with the Government and the various agencies dealing with the implementation of the project were generally satisfactory. The procurement process was properly executed, although there was disagreement between the Bank and the Borrower in one instance, pertaining to the procurement of the mobile crane. This issue was satisfactorily resolved in accordance to the Procurement Guidelines of the Bank. XI. Consulting Services 11.01 Only less than a quarter of the nearly $4.0 million provided in the original project for Technical Assistance, Supervision and Training was actually utilized, largely because of budgetary cuts. Actually the major cut was the proposed $2.5 million for supervision for which local talent was used successfully, and training ($1.0 million) which was financed gratis by the US government. However, a number of important feasibility studies were financed from the Bank loan which not only helped define future port investments but also clarified the position regarding cost related port dues and ESP's costs and tariff levels. XII. Proiect Documentation and Data 12.01 The Staff Appraisal Report was the basis for framing the legal documents, and provided the take-off point for the terms of reference for consulting services and for the supervision of  13 the civil works and the procurement. Given the eventual duration of the project (more than eight years), the changes in the Bank's supervision teams, changes in the Government and the Borrower's management, the SAR also provided a frame of reference concerning the project origins, and for alterations/amendments to the project content, which ensured that the basic objectives of the project were maintained. 12.02 Periodic reports from the borrower were received regularly although often with delays. The Borrower sent a brief 'Informe de Terminaci6n de Proyecto" (Project Completion Report) in August 1993 which is enclosed as Part 11 of this report. At the request of the Bank, in November 1993 and January 1994 BANOBRAS sent cost and other supporting data which were important inputs in the preparation of the report.  14 PROJECT COMPLETION REPORT MEXICO LAZARO CARDENAS [NDUSTRIAL PORTS PROJECT (LOAN 2450-ME) PART U PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. Introduction Owing to the major problems caused by the concentration of population and industrial activities in Mexico City and its Metropolitan Area (including the states adjoining the Federal District), in the course of the 1970s and early 1980s the Mexican Government adopted a set of measures aimed at defining national policy concerning spatial development. These policies were then embodied in the Law on Human Settlements (1976), the National Urban Development Plan (1978), and the National Development Plan published in 1983. In this context, the Industrial Ports Program was a key element in the Government's entire strategy for redistributing population, jobs and industrial development from the country's central region to the coasts. In addition, this program was intended to improve the national transport infrastructure and broaden the industrial base, as well as promoting exports. However, the development of the industrial ports proceeded more slowly than planned (including that of the LAzaro Cardenas Industrial Port), in part because of the recession that hit the country at that time, which slowed new investments in Mexico, and also because of the very optimistic projections of demand for land for industrial use in the port areas. It should also be noted that this period was one of major budget constraints for the Federal Government, which impacted the investments made in maintenance or reconstruction of the country's infrastructure, including its port infrastructure. II. Description of the Project and its Modifications Loan 2450-ME for the LAzro Cardenas Industrial Ports project was initially granted by the World Bank to the Banco Nacional Pesquero y Portuario S.N.C., the loan agreement being signed on September 21, 1984 for an original amount of US$76.3 million for the partial financing of port infrastructure works at LAzaro Cardenas, Michoacan, with the closing date for disbursement set at December 31, 1990. This project formed part of the Industrial Ports Development Program and its purpose was to complement the investments already made in Lizaro Cardenas in order to increase the efficiency of the port, strengthen its administration and finances, create transport savings for the industries already there and in process of construction, reduce or eliminate the area's pollution  15 problems associated with the industrial development of the port and provide protection against flood damage. In the course of its execution the project was reformulated on various occasions, basically to include the reconstruction works following the damage caused by the 1985 earthquakes, and to take into account the two cancellations of funds included in the original amount. The first modification took effect on February 1, 1985 as a result of the establishment and opening of the Special Account in dollars with the Bank of Mexico for facilitating disbursements from the loan. The second modification was made on January 15, 1986 in order to include parts F' and 'G," referring to reconstruction of facilities damaged by the 1985 earthquakes and also restructuring of the amounts by investment categories. The main changes were reductions in the dredging and equipment components because of the lower than expected demand for waterfront land in L.zaro Cardenas and the financial constraints of the Ldzaro Cardenas Port Services. The third reformulation was on March 18, 1988 with the cancellation of US$20 million of the total originally set, owing to domestic budgetary constraints resulting from the delay in execution of the project works, which made it difficult for Mexico to fund payment of commitment fees due to the slow pace of disbursements from the external loans contracted. In addition, as of September 29, 1989 US$18.05 million of this line of credit was cancelled, chiefly because of lack of counterpart funds, leaving US$38.25 million in the credit line. As a result of the deterioration of the economy during those years, budget cutbacks were very frequent and in none of the fiscal years of Loan 2450-ME were liquid funds available until the second half of the respective fiscal years. The delays in this connection were due basically to the approval of the investment program being subject to the determination of the financial ceilings ("techos") imposed. It must be noted that it was necessary to extend the closing date of the loan by two years, to December 31, 1992. m. Substitution of Government Financial Agent On March 15, 1989 and May 18, 1989 the Secretariat for Finance and Public Credit, through the Directorate General for External Funding (Directorate of International Financing Agencies) replaced the Federal Government's financial agent, the Banco Nacional Pesquero y Portuario (BANPESCA) by the Banco Nacional de Obras y Servicios Publicos (BANOBRAS) for Loan Agreement 2450-ME. By means of the Agreement on Substitution of Financial Agent, concluded on November 6, 1989, BANOBRAS took the place of BANPESCA as financial agent of the Federal Government, whereby all the rights and obligations initially contracted by BANPESCA with IBRD were taken over by BANOBRAS.  16 BANOBRAS was then able to apply its experience in managing infrastructure projects funded by international financing agencies. Its installed infrastructure enabled efficient continuation of the execution of this project. IV. OPINION AND LESSONS LEARNED BANOBRAS The Mexican Government's confidence in BANOBRAS for managing this type of project was reflected in the contracting of another operation for port equipment and rehabilitation (Loan 2946-ME), for which BANOBRAS was also designated as financial agent for the Government. From the time the loan for the Lizaro Cardenas Industrial Ports project was transferred to BANOBRAS, that institution fully complied with the contractual commitments established, and performed the processing of the documentation for the respective disbursements. All of this was done in constant coordination with SHCP, SCT, Puertos Mexicanos, ESP and FONDEPORT. In addition, through the execution of the project, the channels of communication between BANOBRAS and the executing agencies and with the World Bank itself were improved; in the majority of cases the World Bank staff were cooperative in the interests of the efficient implementation of the project. Notwithstanding the uneven execution of this project, the commitments under the loan agreement were in general complied with. However, the environmental requirements stipulated in the contracts could not be met, partly on account of the lack of clarity regarding decision authority in this area, and also because of budgetary problems. PUERTOS MEXICANOS The World Bank assigned very professional personnel with a thorough knowledge of transportation and especially ports to the project. It is considered that the Bank displayed flexibility during the execution of the project, since it authorized the cancellation of funds and extension of the closing date, together with inclusion of the Topolobampo port and I-Azaro Cardenas grain terminal projects, which were not originally envisaged in the loan. However, as regards procurement and compliance with rules set by it, the Bank was on some occasions felt to be too rigid. As an example, the Bank's recommendation that the contract for construction of the gantry crane be awarded to the Italian firm of Ansaldo, whereas Puertos Mexicanos proposed another firm, can be cited. It was known in advance that Ansaldo would not be able to meet the deadlines specified for completion of the crane, a situation which made it necessary to extend the term of the loan by a further two years.  17 The project was originally assigned to the National Ports Coordination Commission (CNCP) and executed by the Directorate General for Marine Works (DGOM) for the civil works, FONDEPORT as regards the urban works and by the LUzaro Cardenas Port Services Company (SERPOLAC) for equipment procurement. The Secretariat for Water Resources (SARH) also participated as executing agency for the training of the left branch of the Balsas River. In the beginning there were coordination problems among the different agencies for the execution of the works, owing to the budgetary constraints which forced cutting back of the national contributions for the project. This situation prevailed in the period 1985-89. In the same way, the change in responsibility for monitoring the project from the Directorate General for Planning (DGP) to the SCT's Directorate General of Financial Resources caused some delays, largely due to the need for the latter to learn how to handle disbursement requests and forwarding of documentation to the Bank. Owing to the budget constraints in the period 1985-88, the river-training works on the left branch of the Balsas River were halted for a time; at the end of 1988 progress stood at 23% while at loan closing in 1992 it was 65%. The works will be continued in 1993 and will be completed in 1994 with government funds. A similar situation occurred with the environmental projects in the port regarding solid-waste disposal, wastewater treatment plants and industrial sanitary drainage, all projects that were not fully completed. The establishment of Puertos Mexicanos in March 1989, by means of which the different agencies in the ports subsector were all combined into one authority, brought about an appreciable improvement in the execution of the loan, since the centralization of the coordination function in this way facilitated work and expedited the implementation of the projects. The main lesson that can be learned is that when there is a coordinating agency that is responsible for the planning, programming and construction of the works the efficiency of project execution improves markedly, as happened in this project with the establishment of Puertos Mexicanos. During the preparation and execution of the project relations with the Bank personnel were consistently excellent, being characterized by an atmosphere of cordiality and dialogue. On occasions the Bank was approached directly, by phone, fax or letter, which enabled the exchange of information, views and recommendations in a timely fashion, while in other instances the assistance of the financial agent was enlisted to resolve some problem. FONDEPORT On April 10, 1991 the amended agreement between BANOBRAS, the Federal Government through SHCP and FONDEPORT was signed, reducing the funds allocated from the loan to FONDEPORT from US$3.33 million to US$3.25 million.  18 As of May 31, 1993 and due to exchange differences, the funds allocated from Loan 2450-ME to FONDEPORT and actually used totaled US$3.27 million. FONDEPORT's objective in this project was to cooperate in the financing of an investment program for port infrastructure, equipment, studies and training for the Liza ro Cardenas Industrial Port. During the period 1985-90 FONDEPORT, by means of an investment of US$3.27 million, carried out various urban infrastructure works designed to ensure basic services for the establishment of small, medium and large industries, thereby promoting deconcentration and economic development in the country's coastal regions. The tasks accomplished with the support of the loan funds are described below: (a) Installation of utilities for the First Stage of the small and medium industries park: electricity hookups, energy distribution system and lighting for Block 3, stormwater discharge into the right branch of the Balsas River, and a raw-water supply line from the source to the park system. (b) Construction of the industrial sanitary drainage system. Includes: West zone, blocks A-C and C-G: Boulevard G-E and waterfront section of the system made up of 6.2 km of lines, two pump pits with their control equipment, and an oxidation lagoon. (c) Construction of the Boulevard de las Bahias in the Gasolino, San Francisco, El Naranjito and waterfront sections. FONDEPORT succeeded in accomplishing all the objectives specified in Section IV of the loan agreement. However, not all the objectives originally set for the project were achieved, due to a number of factors outside of FONDEPORT's control, which included: (a) Lack of necessary information and financial resources for the preparation of integrated projects that would enable better returns to be obtained from the investment, as also determination of the socioeconomic impacts obtained. (b) Lack of basic services in the region: - High-quality roads suitable for heavy vehicles - High-capacity airport suitable for long-range aircraft - Railways - School facilities for higher education. (c) The region is characterized by a social imbalance resulting from the struggle between the political parties.  19 Table I - Part III Table 2 - Part IlI TABLE 1: RELATED BANK LOANS (USS MDlions) Tille | Loan No. Year of Approval Original Amount Disbursed Comments Pist Post project 820-ME 1972 20.0 19.71 Closed 1977, PCR No. 2592 of June 1979. LAS TruchaS Stecl Proje 934-ME 1973 70.0 67.80 Closed 1977. Lazaro Cardenas Porl built, PCR No. 3478 of May 1981. Port Development Prepaation 1964-ME 1981 14.0 4.5 Closed 1986, PCR No. 7245 of Project May 1988. Ports RehabiL;taion Project 2946-ME 1988 50.0 45.08 Under Implementation. Source: IBRD Statement of Loans, July 31, 1993. TABLE 2: PROJECT TIIMTIILET Il_ e Date Planned | Actual Date Identifiaion May 1982 Preparaion January 1983 Apprisal- September-October 1983 Negotiaion Fcbnrury 1984 May 21-25, 1984 Board Approval March 1984 June 21, 1984 Loan Signature June 1984 September21, 1984 Loan Effectivene December 31, 1984 March 8, 1985 Loan Closing December 31, 1990 December 31, 1992 proje compleon December 31, 1990 December 31, 1992 Source: IBRD Projeat Files  20 Table3 - Pa m TABLE 3: COMPARISON BETWEEN APPRAISAL ESTIMATES AND ACTUAL COSTS (USS Millions) Appraisal Estimates Actual Costs Description Local Foreign Total Local Foreign Total Road Access 2.3 1.9 4.2 .5 .8 1.3 Rail Access 0.2 0.9 1.0 2.5 3.8 6.30 Maritime Access 8.9 20.9 29.8 Equipment 3.2 8.5 11.7 1.10 11.5 12.60 Collector Sewers 1.5 1.5 3.0 1.34 1.40 2.74 Solid Waste Systems 1.2 1.8 3.0 Industrial Park 1.3 1.1 2.4 1.18 1.67 2.85 Flood Protection 8.1 18.9 27.0 7.20 11.10 18.30 Technical Assistance 0.2 0.4 0.5 .10 .60 .70 Supervision 0.8 1.8 2.5 Training 0.3 0.7 1.0 Total Investments 27.9 58.2 86.1 13.92 30.87 44.79 Contingencies 8.5 17.9 17.4 .48 .09 0.57 TOTAL COSTS 36.4 76.3 112.7 14.40 30.96 45.36 Additional Items - - Civil Works (TOPOLOBAMPO) 5.1 7.2 12.3 Exchange Rate Adjustments - - - .12 .09 0.21 GRAND TOTAL 36.4 76.3 112.5 19.62 38.25 57.87  21 ---- Table 3A - Pa m TABLE 3A: COMPARISON BETWEEN APPRAISAL AND ACTUAL FINANCING PLAN (US$ Millions) Appraisal Plan Actual Financing Instituon Local Foreign Total Local Foreign Tota IBRD 76.3 76.3 38.25 38.25 Government 36.4- 36.4 19.62 19.62 | TOTAL _________ 112.7 57.87  22 TabI 4-Par III TABLE 4: ESTIMATED AND ACTXJAL SCHEDULE OF DISBURSEMENT (USS Millious) Actual as % of Revised IBRD Fiscal Year Appraisal Estimate Revised Estimate1 Actual Disbursements E stimates 1985 September 1984 December 1984 1.7 March 1985 6.0 0.19 3 June 1985 5.8 6.40 7.45 116 19B6 September 1985 7.90 7.86 99 December 1985 17.2 8.25 8.21 9 March 1986 8.90 9.18 103 June 1986 28.3 10.10 9.86 93 1987 September 1986 10.43 10.73 102 December 1986 39.4 11.63 11.08 95. March 1987 11.83 11.08 94 June 1987 46.7 12.03 11.08 92 1988 September 1987 13.28 12.57 95 Decernber 1987 54.1 13.28 13.19 99 March 1988 13.28 13.19 99 June 1988 63.4 13.43 14.53 108 1939 September 1988 13.63 14.53 106 December 1988 72.8 15.13 15.71 104 March 1989 15.58 17.08 110 June 1989 73.9 15.88 17.80 112 1990 September 1989 18.08 17.99 99 December 1989 75.3 18.68 19.49 104 March 1990 19.18 13.25 95 Junc 1990 76.3 20.48 19.49 95 1991 Septenber 1990 21.13 19.49 92 December 1990 21.63 19.49 90 Much 1991 .83 23.73 99 June 1991 23.33 U.96 101 1992 September 1991 25.83 24.90 96 December 1991 27.23 27.23 100 March 1992 35.35 29.35 83 June 1992 35.65 33.45 94 1993 September 1992 35.95 35.90 99 December 1992 38.25 - 38.25 100% 38.05 cuncello Source: Supervision Reports and IBRD Project tiies 1. This is the last version of the revised estimatte which was continuously updated by supervision missions.  23 Table 5 - Part [ll TABLE 5: COMPLIANCE W[TH LOAN COVENANTS SECTION SUBJECT ... DEADLINE STATUS Loan Agrzement 2.01 Amount of Loan - $76.3 million Disbursed - $38.25 million Cancelled - $38.05 million 2.02 (b) Opening of Special Account Complied 3.01 (a) Contractual Agreement with ESP and Complied (paras 6.02 to 6.06 o FONDEPORT Part I) 3.01 (b) Contractual Agreement Complied Guarantor/Borrower for funds transfer 4.01 (a) Borrower to represent all assets free of Septemb-r 28, 1984 Complied. liens 4.02 Annual Audit of Special Account Complied. Guarantee Agreernent 2.01 Guarantor to ensure punctual payment Complied of principal and interest 2.02 Guarantor to provide funds for project Complied partially due to economic policy and budget constraints, but in line with revised project scope. 3.01 Guarantor to carry out Parts A, C (ii), Limited funds restricted E (i), (iii), (v), F and G of project with progress. due diligence. 3.02 (a) Guarantor/Borrower contractual project Complied. arrangements to transfer funds 3.02 (b) Guarantor/Municipality contract for Part Complied. C (ii) (solid waste) 3.02 (c) Guarantor/FONDEPORT contract for Complied. Part A (iv) (River Rectification) for partial recovery of investment costs. 3.02 (d) Guarantor not to amend contract Complied.  24 TABLE 5: COMPLIANCE WITH LOAN COVENANTS (cont'd) SECTION SUBJECT | DEADLINE STATUS 3.03 Guarantor to employ consultants for Complied Parts E (i), (iii), (v) 3.04 Guarantor present studies and Studies submitted late. engineering designs for Parts C (ii) prior to December 15, 1984. 3.05 All subjects under Part A (iii) Component cancelled (Dredging) to have minimum ERR of 12% and to provide for cost recovery. 3.06 All subprojects under Part A (iii) to be Complied with the submitted not later than December 31, deferred/amended date of 1987. December 31, 1989. 3.07 Semi-annual exchange of views on: (a) Financial status of Project. (b) Achievement of objectives Complied (c) Pollution Control Indicators. Complied 3.10 (b) Guarantor to prepare and submit PCR December 31, 1993. Complied partially 3.11 Guarantor to acquire land rights for Mostly complied in Parts A, C(ii) of project. accordance with amended scope of project. 3.12 Bank to publish notice of award of Complied. contracts 3.13 Regulation of operation of hydropower Complied plants in accordance with project. 4.01 Creation of lien on assets. Complied. 4.03 (b) Submission of verification of accounts Complied. and records annually. 4.04 Contact Bank to furnish accounts related Complied. to Special Account. 4.05 Study on Port dues. September 15, 1985. Complied. Exchange of views with Bank. January 15, 1986. Complied. Action Plan. Complied. 4.06 Guarantor to enable ESP to meet Complied financial targets.  25 TABLE 5: COMPLIANCE WITH LOAN COVENANTS (cont'd) SECTION SUBJECT ... DEADLINE STATUS 4.07 Adequate maintenance of project Partially complied due to items. earthquake and paucity of funds. 4.08 Transfers of port equipment to ESP Complied. as equity. 4.09 ESP to collect storage fees and Complied. retain sufficient to cover costs. 4.10 ESP and Borrower acting as mistee Complied. for FONDEPORT to perform. 4.11 Prevent Wastewater Discharge by Industries complying. Plants and terminals from FIDELAC not complying. contaminating surface waters. FONDEPORT Proiect Argeement 2.01 (c) Administration Commercialization Complied. and promotion studies by December 15, 1986 and implementation of Action Plan. 4.01 Maintenance of separate accounts Not complied' for Lazaro Cardenas. 4.02 Annual Audit of Project Accounts Complied. and FONDEPORT financial Accounts. FSP Proiect Complied. A2reement 2.07 ESP Costs and Tariff Studies and Action Plan. 4.02 Annual Audit of financial statements Complied. and project expenditure. 4.03 ESP to produce total revenues in Complied. FY '95 and '86 as specified. 1. FONDEPORT was officially dissolved by Presidential decree when Puertos Mexicanos was formed (para 5.08) in March 1989, although it still continues to exist.  26 Table 6 - Part m TABLE 6: ESP's REVENUE AND EXPENDITURE STATEMENTS (in millions of Mexican pesos) 1983 924 1985 1986 1987 1988 7989 REVENUES Port Services 393 413 646 1319 4858 8493 16999 Other Revenues 2 11 153 828 1432 849 Total Revenues 393 415 657 1472 5686 9925 17848 COSTS Working Costs 351 431 622 1092 4068 6866 10306 Depreciation 21 23 32 182 754 2876 3383 Total Cost 372 454 654 1274 4822 9742 13689 Operating Surplus 21 -39 3 198 864 183 4159 Inflation Index 100 165 261 486 1126 2411 2892 RATIOS: 1983 1 1986 12 1988 i198 Actually Achieved: Working Ratio 0.89 1.04 0.95 0.74 0.84 0.81 0.61 Operating Ratio 0.95 1.09 1.00 0.97 0.99 1.15 0.81 Sar Estimates: Working Ratio 0.94 1.11 0.97 0.87 0.71 0.63 0.62 Operating Ratio 0.96 1.45 1.42 1.27 1.02 0.86 0.84  27 Table 7A - Part HI TABLE 7A: USE OF BANK RESOURCES (STAFF INPUTS) Stage of Project Cycle Planned Actual Comments Through Appraisal N/A 109.4 Appraisal Through Board Approval N/A 18.9 Board Approval Though Effectiveness N/A 10.0 Supervision N/A 135.3 273.6  28 Table 7B - Part III TABLE 7B: MISSION DATA AGE OF PROJECT | MONTH/YEAR | NUMBER OF | DAYS IN SPECIALIZATION PERFORMANCE COMMENTS CYCLE PERSONS FIELD REPRESENTED RATINGS I. Throueh Appralsal First project brief for an Industrial Port Project. Project Identification April 1982 2 7 Eng. Eco. Project Brief Updated May 10, 1982. Project Preparation May 1982 2 5 Eng. Eco. Project Brief Updated June 15, 1982. Project Preparation January 1983 3 7 Eng, Eco, Fin. Project Brief Updated March 17, 1983. Project Preparation May 1983 3 14 Eng, Eco, Fin. Project Brief Updated June 16, 1983. Project Preparation September 1983 1 14 FCS2, Eco3, Reviewed particularly Flood Control problems related to Rio Balsas. Appraisal September- 5 20 Eng, Fin, Eco, Env, Although this was designated as an October 1983 L04 Appraisal Mission, appraisal could not be completed as institutional and technical gaps remained Issues Paper - November 3, 1983. Interim Decision Memorandum December 12, 1983. 2. Flood Control Specialist 3. Economist for 2 days only to introduce Flood Control Specialist 4. LO for 2 weeks, others for 3 weeks.  29 TABLE 7B: MISSION DATA (cont'd) AGE OF PROJECT MONTH/YEAR NUMBER OF DAYS IN SPECIALIZATION PERFORMANCE CONMMENTS CYCLE PERSONS FIELD REPRESENTED RATINGS 11. Appralsal for Board Approval Post Appraisal Mission December 1983 1 1 Eng. Brief visit to review progress of outstanding issues. Appraisal Completion January 1984 7 7 Eng, Env, Eco, Fin, Revised Issues Paper issued Mission FCS, Evn, DC' February 17, 1984. Decision Meeting - February 23, 1984. Decision Memorandum - March 9, 1984. Negotiations May 21-25, 1984 Board Approval June 21, 1984 Loan Agreement signed September 21, 1984. Ill. Suprislon August 1984 4 12 Eco, Fin, Eny, Eng. 1 Supervision Loan Signature September 21, 1 1984 Loan Effective March 8, 1985 Supervision April 1985 3 13 Eco, Fin, Eng. Budget Constraints appear in 1985 budget. Supervision November 1985 2 12 Fin, Eng. 2 Reformulation of project proposed because of Earthquake and budget constraints. S. Division Chief joined the mission for 2 days.  30 TABLE 7B: MISSION DATA (cont'd) AGE OF PROJECT MONTH/YEAR NUMBER OF DAYS IN I SPECIALIZATION PERFORMANCE COMMENTS CYCI.E PERSONS FIELD REPRESENTED RATINGS Supervisioni April 1986 1 12 Eng. 2 Supervision September- 2 12 Fin, Eng. 2 October 1986 Supervision June-July 1987 3 10 Fin, Eco, Eng. 2 Project Reformulation discussed. Supervision November 1987 2 4 2 Discussions on project refomiulation L01nt`1n.e. Supervisioll September 1988 2 7 Fin, Eng. 2 Port traffic iicreases. financial conidition good. Disbursements only $14 millioi.w Supervision August 1989 3 11 Fin, Eco, Eng. 2 Loani passes from BANPESCA to BANOBRAS. Puertos Mexicanos (PM) tbrined. Loani anid Guarantee Agreements revised. Supervision July 1990 2 10 Fin, Cons. 2 Procuremenit progress still slow. Disbursed $19.5 nmillion. Supervision December 1990 2 5 Fin, Eng. 2 Mission also supervised - 2946-ME. Supervision January 1992 4 14 Fin, Eco, Eng. Env. 2 Disbursements - $27.2 niillion. Supervision June 1992 4 13 Fin, Eco, Eng. Proc. Loan closed at $38.25 million. SUMMARY Mission Data Staff Days Through Appraisal 201 Appraisal to Board 50 Preparation and Appraisal (Total) 251 Board Approval/EffeCtiveness 48 Supervision 306 Supervision (Total) 354  31 Tabk * - PatI TABLES: ECONMIC REVUAMN On MUU.a 1963 Pas) Eqilpu1a t liw. Eqiip mnt totat met mail Cent. S.C tug 1.P Nint. slil Cant. C.C tug L.p Eanefits s n