Mexico - Ports Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 14707 PROJECT COMPLETION REPORT MEXICO PORTS REHABILITATION PROJECT (LOAN 2946-ME) JUNE 28, 1995 Infrastructure Division Country Department II Latin America and the Caribbean Region This document has a restricted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEXICO PROJECT COMPLETION REPORT PORTS REHABILIrATION PROJECT (Loan 2946-ME) Currency Eauivalent Currency Unit Peso (MeS$) US 1.00 Mex$ 25 inDecember 1981 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 Mex$ 3360 in December 1993 ABBREVIATIONS API Integral Port Administrations BANOBRAS National Bank for Public Works and Services CDP Port Development Committee CGPM Coordination of Ports and Merchant Marine Services CNCP National Commission for Port Coordination DGOM Directorate General for Maritime Works DGP Directorate General for Planning DGPP Directorate General for Ports DGT Directorate General for Tariffs ERR Econornic Rate of Return ESP Port Services Company GDP Gross Domestic Product PEMEX Petroleos Mexicanos PUERTOMEX (PM) Puertos Mexicanos SCT Secretariat for Communications and Transport SEDRA Dredging Service SEPOG ESP of Guaymas SEPOM ESP of Manzanillo SERPOVER ESP of Veracruz SPP Secretariat for Progranmuing and Budgeting  FOR OFFICIAL USE ONLY THE WORLD BANK Washington, D.C. 20433 U.S.A. Office of Director-General Operations Evaluation June 28, 1995 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Completion Report on Mexico Ports Rehabilitation and Equipment Project (Loan 2946-ME) Attached is the Project Completion Report (PCR) on the Mexico - Ports Rehabilitation and Equipment project (Loan 2946-ME, approved in FY88) prepared by the Latin America and Caribbean Regional Office with Part II contributed by the Borrower. The Loan for US$50 million equivalent was closed on schedule on June 30, 1994. A balance of about US$3.8 million was canceled. The loan was the fourth to assist the port system in Mexico. Its objectives were to (a) improve port efficiency through the rehabilitation and modernization of port operations, infrastructure and equipment; (b) improve port equipment management, including equipment procurement, finance and maintenance; (c) help with the reorganization of dredging; and (c) strengthen port investment planning and financial management. New infrastructure works, equipment procurement and rehabilitation of facilities were to be undertaken in four ports. Rehabilitation and modernization of dredging covered both acquisition and repair of equipment and a planning and management study. Technical assistance for management included, inter alia, a study of the project's environmental impact. The project seems to have been successful. Traffic increased; dredging operations were reorganized; cost studies resulted in an overhaul of the tariff structure and a more effective recovery of port charges. The economic return of the project would be 29 percent against 22 percent forecast at appraisal. A Strategy for Privatization Study was conducted. Major and positive changes in port administration took place during project implementation; dredging services were privatized; a new Ports Act was passed in 1993, which opened the way to privatization of local Integral Port Administrations through concessions (BOT) schemes. While the PCR tends to attribute these reforms to the project, documentation is missing on its actual impact on Government policy. The outcome of the project is rated as satisfactory; its sustainability is rated as likely; and its impact on institutional development is rated as modest. The PCR lacks important information, especially as regards finance, compliance with covenants, procurement, studies and the execution of an action plan that was central to project implementation. An audit is planned. 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.   MEXICO FOR OFFICIAL USE ONLY PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (Loan 2946-ME) TABLE OF CONTENTS PREFACE .................... EVALUATION SUMMARY .............................................................. ii PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE .............................I Project Identity ..............................................................1I Background ..............................................................lI Project Objectives and Description ...............................................................2 Project Design and Organization ...............................................................4 Project Implementation ...............................................................4 Project Results ................................................................6 Sustainability ................................................................8 Bank Performance ...............................................................8 Borrower Performance. ............................................................... 8 Project Relationships ...............................................................9 Consulting Services ................................................................9 Project Documentation and Data ...............................................................9 PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE ............. 10 Institution Building ............................................................... 0 Project Cost ...............................................................11 Organization for Project ........................................................ .. .... 1 Availability of Counterpart Funds .............................................................. 12 Financial Position of Ports .............................................................. 13 Lessons to be Learned .............................................................. 13 PART HI: STATISTICAL DATA ....................................... ........................... 15 TABLE 1: Related Bank Loans .......................... ....................................... 15 TABLE 2: Project Timetable ................................................................. 15 TABLE 3: Comparison Between Appraisal Estimates & Actual Costs .......... .............. 16 TABLE 4: Comparison between Appraisal Estimates and Actual Financing Plan ......... 17 TABLE 5: Estimated and Actual Schedule of Disbursements ...................................... 18 TABLE 6: Financial Position-Summary ................................................................. 19 TABLE 7: Income and Expenditure Statement . .......................................................... 20 TABLE 8: Sample Cost- Benefit Flow ................................................................. 21 TABLE 9: Use of Bank Resources ...................................... ........................... 22 TABLE 10 Mission Data ................................................................. 23 TABLE 11: List of Studies Conducted Under Project .................................................. 25 MAPS: IBRD 20358R Trans--ortation Network and Principle Port Locations This document has a restricted distribution and may be used by recipients only in the perfonnance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   - i - MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) PREFACE This is the Project Completion Report (PCR) for the Ports Rehabilitation Project, for which Loan 2946-ME in the amount of US$50 million was approved on May 31, 1988. The Loan was closed on June 30, 1994. Of the loan of US$50 million, US$46.2 million was disbursed and US$3.8 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 Part I and III). A brief report containing a review of the project from the borrower's perspective is included as Part II.   - ii - MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJ.ECT (Loan 2946-ME) EVALUATION SUMMARY Objectives 1. The principal objectives of the project, namely the improvement of port efficiency, dredging operations, planning, and financial management, were largely achieved (para. 5.3). Dredging operations were improved through privatization. Financial management and performance was improved largely through the appropriate revision of port charges and through more effective recovery of port charges. However, the most significant contribution of the project was the reorganization of the ports sector and the improvement of container handling facilities in Veracruz, Manzanillo, Altamira and Lazaro Cardenas (para. 6.1). Implementation and Results 2. Although there was some delay in the start up of the project (para 5. 1) and substantial changes in the project content (paras 5.1 and 5.3) the essential components of the project were completed within the scheduled time (para 5.4) with increased emphasis on container handling operations and the privatization of the dredging services. Overall costs of the project at US$127.9 million was over 40% higher than the appraisal estimate, mainly because of inflation and changes in the project content (para 5.5). Total port traffic increased substantially (para 6.2) and the financial position of the four ports improved significantly, with the exception of Guaymas where there was a reduction in traffic after 1992 (para 6.3), as reflected in the 1993 financial results. In the other three ports the improvement in finances was considerable, particularly in Veracruz (para 6.4). Throughout the period of implementation of the project, the port organization improved (paras 8.1 and 9.1) and the economic re-evaluation of the project yielded an ERR of 29% against 22% forecast at appraisal (paras 6.5 and 6.6). Sustainability 3. The project witnessed the maturing of the institutional set up of the port sub-sector and the rehabilitation of the subject ports was significant and important. This will enable over time the realization and maintenance of the projected benefits of the project (para 7.01).  - iii - Findings and Lessons Learned 4. This was a successful project that covered four important ports in Mexico. The project helped provide additional container handling facilities in Veracruz, Manzanillo, Altamira and Lazaro Cardenas. The work of improving grain storage facilities at Veracruz was entrusted to the private sector. Review and re-allocation of equipment in the various ports improved equipment utilization and maintenance. Dredging operations were privatized. A set of studies helped modify and refine the investments. Above all substantial financial and organizational improvements resulted as a result of the project. 5. Although the Bank-Borrower relationships were, in general, satisfactory and the procurement process was properly conducted, in an amicable manner, a dispute in regard to the award for a heavy-duty container crane (paras 9.1 and 10.1) has elicited a complaint from the Borrower in his report (Part II). The Borrower was asking for some flexibility on the part of the Bank which was not possible under the prevailing Bank Procurement Guidelines. This should not, however, detract from a project which was, in general, well- executed.  MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) PART I PROJECT REVIEW FROM THE BANK'S PERSPECTIVE I. Project Identity: Project Name: Ports Rehabilitation Loan Number: 2946-ME Loan Amount: $50 million Project Cost on Approval: $90.2 million Actual Project Cost: $129.4 million RVP Unit: Latin America & Caribbean Region Country: Mexico Subsector: Ports II. Background: 2.1 The dramatic swings in the Mexican economy in the late 1970's and the early 1980's had a significant impact on the transport sector. The surge in the economic activity in this period, with the GDP rising by an average of 6% per year in real terms and an unprecedented demand for imported grains led to a period of high traffic growth for all modes of transport with the ports registering an average annual growth of 8% in cargo tons from 1978 to 1981, the railways 5% per year and the highways an unprecedented growth of 13% per year. As a result investment in transport which had declined in relative terms from 20% of public sector before the 1970's to 9%, was accelerated, particularly for ports and railways. The sectoral focus was on providing sufficient capacity to support the oil-fed grovth of the economy. 2.2 By 1982, however, the rate of expansion of the economy, led by public sector expenditures became untenable. The fiscal deficit reached over 17% of the GDP, capital flight accelerated and the Mexican peso was devalued by 268% in 1982. GDP fell, and as the Government's stabilization and demand-management program took hold, traffic declined and investments were curtailed. Recovery of the economic activity did not come till 1987. However as budgets remained limited the emphasis in transport tended to be on tackling the backlog of maintenance and rehabilitation works, on minimizing new construction, and on continued rationalization of public sector expenditures. This project was initially proposed to be a sector project, however, it was felt that the planning functions in the port agencies concerned needed further strengthening before a sector type operation could be handled by the port sector, and therefore it was proposed that a two-phase approach would  - 2 - be adopted. The proposed project, scheduled for 1988 would cover a limnited time period (1988-94) and four main ports i.e. Guaymas, Manzanillo, Tampico-Altamira and Veracruz, and the National Dredging Service (SEDRA). This project would also start to address some of the sector policy issues with the DGP, the central planning body of the Secretariat for Communications and Transport (SCT), and thus lay the foundation for a follow-up project of a broader sectoral nature. 2.3 The first project brief was actually made in February 1986. This was refined in May 1986 and resulted in the final project brief in mid November 1986. The appraisal of the proposed project took place from November 23 to December 10, 1986, and focused the project on improving the efficiency of port operations in four of the main ports (Guaymas, Manzanillo, Tampico-Altamira and Veracruz) and in strengthening the capacity of SEDRA.. However, the appraisal mission was unable to complete the appraisal for want of completed investment and action plans, an adequate dredging study and a draft Ports Policy Paper. A letter to the Secretary of Communications and Transport in December 1986 spelled out the outstanding requirements and target dates for the various plans and studies, and the finalization of the project was deferred. Another Bank mission visited Mexico in September 1987, reported progress in the various plans and reports, but suggested more work on the Ports Policy Paper which had not quite come up to the standard required. In March, 1988, the management of the Bank authorized negotiation while still expressing concerns over the need for a) having a firm plan for carrying out the project in the various ports, and b) the revision of the cost estimates on the basis of more recent prices. Negotiations were held in April 1988 and the Board Approval for the project was given on May 31, 1988. III. Project Obectives and Descriptio 3.1 Project Objectives. The principal objectives of the Bank's support for the Ports Rehabilitation project, were to: a) improve port efficiency through the rehabilitation and modernization of port operations, infrastructure and equipment; b) assist in the acquisition of dredging equipment, maintenance and operational training, and help with the administrative reorganization of the dredging finctions; and c) strengthen port investment planning and financial management. 3.2 Port efficiency had been an important element in Mexico's economic recovery and in the Govermment's and Bank's efforts to strengthen the country's transport infrastructure. The last two port projects had helped establish a basis for rationalizing the system of port administration and the pricing of port services This project was designed to improve investment planning, operational efficiency, and cost recovery policies. 3.3 Project Description. The project comprised primarily the rehabilitation of port infrastructure and equipment. procurement of replacement equipment, replenishment of spare parts stocks, technical assistance and training. In addition there was procurement of new container and bulk grain handling equipment for Guavmas, Manzanillo and Veracruz, and container equipment for Altamira and Veracruz, as well as measuring and survey equipment and auxiliary craft and barges for SEDRA. Details of the various project items are given below:  -3- Part A: Ports Rehabilitation and Equipment 1. At the Port of Guaymas. (a) Construction of a new control building and installation of lighting for the container terminal; leveling, paving and striping for the container storage area; repairs of railway tracks; rehabilitation of the utilities systems; relocation of a transit shed; and (b) acquisition and/or rehabilitation of equipment for the handling of container, break bulk general cargo and grain. 2. At the Port of Manzanillo. (a) Rehabilitation of the utilities systems; striping of the container storage area and port area; and (b) acquisition and/or rehabilitation of equipment and facilities for handling and transit storage of containers, break bulk cargo and grain. 3. At the Port of Tampico-Altamira: At Tampico: (a) Construction of marine protection works at the mouth of the Panuco river and to the south of the harbor; construction of mooring and fendering systems; construction of sheds and storm drainage on the wharves; installation of paving on the wharves; improvements to access road; and (b) acquisition and/or rehabilitation of equipment for handling general cargo; acquisition of aids to navigation. At Altamira: (a) Improvements to access road; completion of access railway; construction of an extension of 250 meters to the container wharf, including necessary dredging and construction of an adjoining container yard, an equipment maintenance shop, a control building and an apron on the existing consolidation shed; and (b) acquisition of container handling equipment. 4. At the Port of Veracruz. (a) Lowering of pipelines from the 'PEMEX" terminal near the entrance of the existing container terminal; (b) construction of bridge at same site for accessing container yard at west side of site; (c) rehabilitation of break-bulk and container handling equipment; and (d) acquisition of container and grain handling equipment. Part B: SEDRA Rehabilitation and modernization of the basic fleet of trailing suction hopper dredges and cutter suction pipeline dredges; acquisition and utilization of auxiliary vessels and craft, measuring equipment and spare parts; carrying out and implementing studies of nationwide dredging needs and of strengthening SEDRA's management and planning capacity for future needs. Part C: Technical Assistance Carrying out of: (a) studies to assist SEDRA to implement its Action Plan; (b) a cost- benefit study of relocating bulk traffic facilities from the Panuco river to Altamira; (c) assistance in the preparation and implementation of equipment maintenance programs; (d) assistance in developing port management accounting systems; and (e) supervision of construction of major civil works. 3.4 The total estimated cost of the project including contingencies was about $90.2 million. The expected foreign exchange component was about $50.0 million which was proposed to be financed by the Bank loan. The local costs of $40.2 million were to be financed by internally generated funds  from the ports ($20.6 million) and by the Government ($19.6 million). The projects was slated for completion on December 31, 1993. IV. Project Design and Or,ganization 4.1 SCT through the Directorate General for Maritime Works (DGOM), the National Commission for Port Coordination (CNCP), the various Port Services Companies (ESPs) (for Guaymas, Manzanillo, Tampico-Altamira, Veracruz) and SEDRA would be responsible for the implementation of the project. A project coordinator with some support staff was appointed in the Ports and Systems directorate of CNCP and was made responsible for the implementation of the project and for monitoring its progress, including the preparation of quarterly reports to the Bank. The project coordinator was also responsible for obtaining the required budgetary appropriations from the Secretariat for Programming and Budgeting (SPP). A detailed program for project execution was prepared, and during negotiations, agreement was reached with SCT and the concerned agencies on the program and the project implementation schedule. 4.2 In order to maintain close control of project execution activities, performance indicators and targets were agreed upon with the borrower in the form of an Action Plan covering a range of operational targets relating to the quality and efficiency of port operations. Responsibility for the various procurement activities were clearly earmarked and the methods of procurement (ICB, LCB, other) specified for each group of activity in accordance with Bank Guidelines for Procurement. During negotiations, agreement was reached on the Terms of Reference for consulting services for technical assistance, for studies, and for design of improvements and supervision of construction. BANOBRAS was the designated Borrower of the Bank's loan at the current terms of 15 years, including 5 years of grace. BANOBRAS would onlend to the other entities at the same terms plus a small fee for its intermediary role. In order to reduce the time interval during which the government would finance the Bank's share of project costs with its own funds, a Special Account was set up with Banco de Mexico under the control of BANOBRAS. Agreement was reached during negotiations that annual audits of the Special Account and SCT's project accounts would be carried out in a manner satisfactory to the Bank. V. Project Implementation 5.1 Loan Effectiveness and Project Startup. Although the Board approval of the loan was given in May 1988, the Loan Agreement was not signed until a year later in June 1989. Initially there was a problem with the availability of counterpart funds which delayed the preparation of the budget. Subsequently, as a result of the reorganization of the ports sector, and the creation of Puertos Mexicanos (PUERTOMEX) there were further delays in loan signing. The loan finally became effective only on May 4, 1990. The changes effecting the Ports Sector were incorporated in the Loan and Guarantee Agreements with an eight page Amendment letter signed by BANOBRAS and the Bank on February 15, 1990. This letter covered both the Loan Agreement and the Guarantee Agreement and, in addition to the organizational changes arising from the formation of PUERTOMEX and the liquidation of SEDRA, covered also the improvement of the container terminals in Manzanillo and Veracruz and the acquisition of container handling equipment for these ports. The modifications to the Guarantee Agreement particularly spelled out the Guarantor's role in acting through SCT via PUERTOMEX to carry out the Guaymas Action Plan, the Manzanillo Action Plan, the Tampico-Altamnira Action Plan, the Veracruz Action Plan and the Dredging Action Plan and further to cause ESPs of Guaymas (SEPOG), of Manzanillo (SEPOM) and of Veracruz  - 5 - (SERPOVER), with the assistance of the various CDPs (Port Development Committees) to carry out their respective Action Plans. 5.2 Project Changes. Following the first amendment of the Loan/Guarantee agreements in February 1990, the following further changes were made: - March 8, 1990: Regarding date of effectiveness of the first Amendment - May 30, 1990: Clarification of Procurement procedures as indicated in Schedule 4 "Procurement and Consultant's Services." 5.3 Project Execution. The World Bank carried out eight supervision missions from August 1989 to July 1993 (see table 9). During these missions Bank staff met with PUERTOMEX and visited the project ports of Guaymas, Veracruz, Manzanillo and Tampico-Altamira. Additional container handling facilities were provided in Veracruz, Manzanillo, Altamira, and Lazaro Cardenas. The work of improvement of grain storage facilities in Veracruz was entrusted to the private sector. A review and reallocation of equipment to the various ports improved equipment utilization and maintenance, due to the grouping and standardization of port equipment. A national dredging study highlighted the organizational and equipment problems of SEDRA which was liquidated by decree in 1989 when its equipment operations and human resources were passed to the control of PUERTOMEX. In 1993, dredging operations were privatized. A set of studies pertaining to the various ports, and Bank-Borrower conferences helped strengthen port investment planning and define investments for the port sector. Cost studies to indicate the appropriate level of port dues and tariffs resulted in an overhaul of the tariff structure, a more effective recovery of port charges, and, over the period, significant improvements in financial performance (paras 6.3 and 6.4). 5.4 There were some delays in the start up, due largely to the reorganization of the ports sector, and in the implementation of individual sub-projects. However, implementation of the project was completed by the scheduled date of December 31, 1993. 5.5 Project Costs. Analysis of project costs during the project period (1988-1994) has been difficult not only due to the relatively high and fluctuating inflation rates but also because the parity between the dollar and Mexican Peso varied considerably 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 Plans are shown in Table 4 (Part III). The actual cost of the project at $127.4 million was substantially (41%) in excess of the Appraisal Estimate of $90.2 million, mainly because of inflation and some changes in the project (paras 5.1 and 5.2). 5.6 Overall, local costs of the project were $58.5 million instead of $40.2 million estimated at appraisal and the foreign exchange costs were $69.4 million instead of $50.0 million foreseen. $3.8 million of the Bank loan of $50.0 million was canceled. 5.7 Disbursements. Table 5 (Part III) gives the estimated and actual Schedule of Disbursements. Due to the late signing and effectiveness of the loan, disbursements started in the quarter ending June 1990 instead of the quarter ending December 1988 as foreseen at appraisal. However, the pace of disbursements picked up thereafter and by the end of December 31, 1993, $45.8 million had been disbursed. Disbursement totalled $46.2 million by June 30, 1994 when the project was closed and the balance cancelled.  -6- VI. Project Results 6.1 Ports Objectives. The principal objectives of this project, namely to (i) improve port efficiency through the rehabilitation and modernization of port operations, infrastructure and equipment; (ii) improve equipment management and maintenance; (iii) assist in the acquisition and maintenance of dredging equipment and operations; and (iv) strengthen port investment planning and financial management, were largely achieved (para 5.3). Clearly, the most significant results of the project emerged from the reorganization of the ports sector and the revision of priorities pertaining to the inclusion of container terminals in Veracruz, Manzanillo. Altimara, and Lazaro Cardenas, to cater to the increase in container traffic. Notwithstanding these changes, the project remained within the scope of the original objectives. The other important contributions of this project were the review, reallocation and acquisition of port handling equipment for the various ports, the privatization of dredging operations and the improvement of financial management and performance (para 6.3), achieved largely through the appropriate revision of port dues and more effective recovery of port charges. 6.2 Traffic. Traffic forecasts for the four project ports were based, at appraisal, on the general premise that the Mexican GDP would grow at 2 to 4% p.a. on average over the next decade and that with increasing trade liberalization international trade through the ports system, would grow by 3-5% p.a. on average. In fact, total port traffic through the project ports' rose from 10.2 million metric tons in 1985 to 12.7 million tons in 1993, and had a peak of 13.9 million tons in 1992. Import and export traffic representing international trade rose over the same period from 8.8 million tons to a peak of 12.2 million tons in 1990 and 10.8 million tons in 1993, i.e. an overall increase of 29%. Total port traffic therefore, did increase substantially. This, coupled with the upward revision of tariffs and the improved recovery procedures for port dues, enabled the project ports to significantly improve their finances (para 6.3). 6.3 Financial Performance. The financial position of the four project ports improved substantially during the project period, with the exception of Guaymas where there was a reduction in the traffic after 1992, as reflected in the 1993 financial results. In the ports of Manzanillo, Tampico-Altamira, and Veracruz the revenues improved, particularly in the port of Veracruz. 6.4 A summary of the financial position of the ports of Guaymas, Manzanillo, Tampico- Altarnira and Veracruz for the years 1990 to 1993 is given in Table 6, and the details of the revenues and expenditures are in Table 7. There is a clear pattern over the project period of increasing revenues which increased 284% over the 3-year period 1991-1993 whereas operating expenditures went up by 26% thus leading to an improvement in the operating ratio from .91 to .84. The corresponding improvement in Manzanillo was from 0.97 in 1990 to 0.85 in 1993, and in Tampico- Altamira from 0.97 in 1990 to 0.85 in 1993. 6.5 Economic Re-evaluation. Traffic growth averaged about 6.5% p.a. in the project ports compared to about 4.5% forecast at appraisal. With the substantial increases in traffic and productivity at the four project ports, the re-evaluated economic rates of returns (ERR) for the ports, except for the Guyamas port, are slightly higher than the appraisal estimates as shown below. The overall return for the four ports is 29% compared to 22% at appraisal. No ERR has been estimated for the purchase of dredging equipment since the dredging service was privatized in 1993 and it ' Including cabotage  -7 - for the purchase of dredging equipment since the dredging service was privatized in 1993 and it would be unrealistic to forecast the retums to the private operator. Also, Government is in the process of concessioning both container and general cargo handling at the project ports, which is expected to lead to more efficient operation and, possibly, even higher retums than those evaluated. 6.6 . The main benefits used in the re-evaluation include the savings arising from less costly handling of existing and future traffic and the additional income from increased traffic which could not have been handled at the ports in the 'without"project case. This was essentially the assumption upon which the appraisal economic evaluation had been based. On the institutional side, the re- organization of the ports sector management to consolidate it in the PUERTOMEX made a positive contribution to coordinating ports sector planning, policy formulation and regulation. These benefits have not, as was the case at appraisal, been quantified in the re-evaluation. Economic Rates of Return % of Total Economic Rate Project Items Project Cost of Return (%) Civil Works and App. Re-Ev. App. Re-Ev. Specialized Equipment Guaymas 6 1 25 21 Manzanillo 4 31 15 17* Veracruz 14 28 42 49 Tampico/Altamira 38 26 17 22 Lazaro Cardenas 4 SEDRA (Dredging) First Phase 10 8 21 - Second Phase 16 16 Equipment Rehabilitation 11 14 Technical Assistance 2 2 - - Total Project 100 100 22 29 * Refers only to civil works and does not include specialized equipment.  -8 - VII. Sustainability 7.01 Although this project was implemented during a difficult period of considerable economic adjustment, the essential components of the project were all implemented, and within the time schedule foreseen at appraisal. The project witnessed the maturing of the institutional set-up of the ports sector and the rehabilitation of the subject ports was significant and important. This will enable over time the realization and maintenance of the benefits of the project. The work is expected to continue in the follow-up project currently under preparation. VIII. Bank Performance 8.1 The Bank spent 88 staff weeks to prepare and appraise this project, including 216 person- days in the field (Tables 9 and 10). A total of 105 staff weeks was spent on supervision, including 252 person-days in the field. This was, therefore, a carefully prepared project which was well- monitored during its implementation. As a result the project was completed on time, port productivity improved, and there was significant improvement in the finances of the ports. Perhaps the main challenge to the Bank was the evolving institutional set-up of the port sector in Mexico, the formation of PUERTOMEX (in 1989), and the setting up of the independent Administraciones Portuarias Integrales (API). IX. Borrower Performance 9.1 This project was implemented by a Borrower whose organizational set-up was in a continuous state of change during the period of implementation of the project. At the time of appraisal of this project, several agencies dealt with the affairs of the ports in Mexico. In 1989, with the creation of PUERTOMEX, this organization assumed the functions of the CNCP, DGP, DGOM and SEDRA which actually ceased to exist. PUERTOMEX was charged with the function of planning, programming and implementation of all marine and port works, and also the administration, operation and control of the ports in coordination with the 'Empresas de Servicios Portuarios"(ESPs). The intention was to entrust maximum responsibility for operations to the ESPs while retaining the definition of policy planning etc. at the central level of PUERTOMEX. Once the process was well under way and the objectives of creating PUERTOMEX were met, the Government ordered the dissolution of PUERTOMEX in 1992 and started the process of creation of the independent APIs . The APIs are really entities charged with the objective of decentralization of decisions pertaining to the principal ports. This process was completed in August 1994. At the same time, for taking care of the regulatory and policy matters pertaining to the ports and marine matters the Coordinaci6n General de Puertos y Marina Mercante (CGPM) was created and within this set up the Direcci6n General de Puertos (DGP) was entrusted with the regulation and monitoring of port affairs. 9.2 Although the Loan was approved by the Board in May 1988, hardly anything happened in 1988 or the greater part of 1989 till PUERTOMEX was formed and started coordinating the project. It was under the direction of PUERTOMEX that the civil works designs and contracting was done as also the coordination for the assessment and review of the port equipment done in the years 1990, 1991 and 1992, and the improvement of the container terminals in Manzanillo and Veracruz (paras 5.1 and 6.1). The Borrower in his report has complained, emphatically, in respect of the delays caused in the delivery of the Ansaldo Cranes which were ordered on the insistence of the World Bank and against the definitive recommendation of PUERTOMEX. The World Bank's position rested on  - 9 - the Ansaldo offer being the lowest; no alternative was possible under the Bank's Procurement Guidelines. X. Project Relationships 10.1 Bank relationships with the Government and various agencies dealing with the implementation of the project were generally satisfactory. The procurement process was in general properly executed, although there was disagreement between the Bank and the Borrower (para 9.2) which appears to indicate the need for some flexibility on the part of the Bank in procurement matters and perhaps the need for improved communication in controversial matters. Xi. Consulting Services 11.1 A list of the studies conducted during this project is attached in Table 11. Particular reference needs to be made of the importance of the National Dredging Study (June 1988 to March 1989), the techno-economic studies for the acquisition of container equipment (1991), modernization of the system for recovery of port charges, the Study for Optimization of Dredging Operations and the Strategy for the Privatization of Port Services. These studies helped provide the data useful for the continued improvement of the efficiency and the effectiveness of the ports sector in Mexico. XII. Proiect Documentation and Data 12.1 The Staff Appraisal Report (SAR) 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 the civil works and the procurement. Given the eventual duration of the project (more than six 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. 12.2 Periodic reports from the borrower were received regularly although often with delays. The Borrower sent a brief 'Informe de Terminacion de Proyecto" (Project Completion Report) in August 1994 which is enclosed as Part 11 of this report. At the request of the Bank, the Borrower sent, in October 1994, a report on the financial performance of the four ports of Guaymas, Manzanillo. Tampico-Altamira and Veracruz, and in November 1994, some economic data which formed the basis of the review of the Financial Performance (paras 6.4 to 6.6) and the Economic Re-evaluation of the project (paras 6.6 to 6.8).  - 10 - MEXICO PROJECT COMPLETION REPORT PORTS RERABILITATION PROJECT (LOAN 2946-ME) PART II PROJECT REVIEW FROM BORROWER'S PERSPECTIVE 1. INSTITUTION BUILDING In view of the multitude of entities responsible for port-related matters at the time of project preparation in 1987, one of the project's recommendations was to strengthen certain agencies in order to avoid the duplication of responsibilities. In March 1989 an independent entity was created within the Secretariat of Communications and Transport, viz. PUERTOMEX, to take over the functions of the following Government agencies: the Comision Nacional Coordinadora de Puertos - CNCP, the Direcci6n General de Puertos DGP (fonnerly the Direcci6n General de Operaci6n y Desarrollo Portuario - DGODP), the Direcci6n General de Obras Maritimas - DGOM and the Servicio de Dragado - SEDRA, all of which ceased to exist as of that date. PUERTOMEX assumed responsibility for the planning, programming and execution of maritime and port works and also the administration, operation and control of ports, in coordination with the Empresas de Servicios Portuarios - ESPs. In September 1992 it was decided that, since PUERTOMEX had served the purpose for which it had been created, it should be disbanded. The process then began of creating the Administraciones Portuarias Integrales, APIs, i.e. commercial enterprises that were to manage the ports on an autonomouis basis, the ultimate aim being to establish decentralized decision-making on port-related matters. This process was completed in August 1994. At the same time, the Coordinaci6n General de Puertos y Marina Mercante was established as the port and maritime regulatory agency, within which the Direcci6n General de Puertos was formed to assume responsibility for regulating and supervising port matters. The aim was thus to give ports autonomy and enable them to participate in the port investments and operations of the private and social sectors.  - 11 - 2. ESTIMATED PROJECT COSTS AT APPRAISAL COMPARED TO ACTUAL COSTS There were considerable differences in the actual costs of the port works compared to estimates. They were 43.5% higher in terms of total costs, 45.5% higher in terms of local costs and 41.8% higher in terms of external costs. These variations were attributable to the fact that when Puertos Mexicanos was formed, changes were made in the objectives and programs for the port sector, including the decision to build and equip four container terminals in Altamira, Veracruz, Manzanillo and Lazaro Cardenas in order to respond to the growing demand for container traffic. More than variations in the estimated costs, since contingencies only accounted for 8% compared to the 19% of the cost originally budgeted for, what occurred was rather a redistribution of investment priorities in the project ports, with cuts being made in some and increases in others; as a result, it is felt that, with the changes, the original objectives have been more than accomplished. It should be pointed out that rehabilitation of the dredgers declined in 1993 because the fleet was sold to the private sector at the Bank's recommendation. The operating goals were not met, this being partly due to the fact that the shipyards where the dredgers were rehabilitated took too long to do the repairs, which meant that less operating time was available. 3. ORGANIZATION FOR PROJECT EXECUTION AND REASONS FOR DELAYS As mentioned earlier, responsibility for organizing project execution was divided among several different departments. The Direcci6n General de Obras Maritimas was responsible for the execution of the civil works; the Empresas de Servicios Portuarios of Manzanillo and Guaymas, the Tampico- Altamira Port System and the Direcci6n General de Operaci6n y Desarrollo Portuario were responsible for procuring port equipment, and the Servicio de Dragado (Dredging Service) was in charge of everything related to dredging equipment. There was, however, no department within the Secretariat of Communications and Transport responsible for coordinating project implementation. This lack of coordination resulted in virtually no progress being made on the project in 1988 and 1989. With the creation of Puertos Mexicanos in March 1989 responsibility for coordinating the project was assigned to this decentralized entity, which proceeded to revise it and to reschedule the various activities for the construction and rehabilitation of port infrastructure and for the procurement of equipment. Under the coordination and responsibility of Puertos Mexicanos, preparations were made during 1989 for the engineering plans for the civil works and for the procurement of the equipment, with implementation of these plans taking place during 1990, 1991 and 1992. Because of the restructuring  - 12 - of the port sector, the loan proceeds had not yet been used in 1993 and the works were completed with local funds, the use of loan funds being limited to paying for debts predating the procurement of equipment. Attention must be drawn to the delay that occurred in the manufacture of the four gantry yard cranes, the two assigned to Lazaro Cardenas being delivered 18 months late and the two for Altamira 21 months late, with all the economic and financial repercussions that this entailed for Mexico. The reason for the delay was the technical and administrative incompetence of Ansaldo Industria, the manufacturing company, to which the contract had been awarded on the World Bank's recommendation, despite the arguments presented by Puertos Mexicanos against selecting that company. The problem occurred when the World Bank, in 1990, thought that Puertos Mexicanos had not complied with the two-step international bidding procedure, which prompted Ansaldo to complain and resulted in the competition being declared null and void. PUERTOMEX was obliged to organize another international bidding competition linited to the participation, by invitation, of those who had competed in the earlier competition. This time the lowest bid was that of Ansaldo, to whom Puertos Mexicanos had no choice but to award the contract on December 20, 1990, despite its opposition, as previously mentioned. 4. AVAILABILITY OF COUNTERPART FUNDS AND OTIIER FEDERAL GOVERNMENT FUNDS From 1990 onwards the project had no problems with the allocation of local funds, either as regards the counterpart loan funds or the supplementary civil works undertaken in the project ports, since PUERTOMEX had had the foresight to program them into its annual budgets. As for the other Government funds, these were made available in a timely fashion in the form of both local funds and the proceeds of loans from other countries. Financing for the gantry yard cranes allocated to the Port of Veracruz was obtained from Bardella, the supplier, under the Brazil-Mexico Agreement, while those allocated to the Port of Manzanillo were financed by the Line of Credit from the King of Spain. Both loans were used without any problem. Sufficient fuiids were made available to the project to cover the contractual commitments, which were 43.5% higher than estimated in the project appraisal studies.  - 13 - 5. FINANCIAL POSITION OF THE PORTS DURING AND FOLLOWING PROJECT IMPLEMENTATION. The financial position of the project ports during project implementation improved as their facilities were rehabilitated and their equipment was procured, with the exception of Guaymas, which experienced a reduction in cargo volume from 1992 onwards, reflected in its financial performance. In the other three ports, revenues from port dues and cargo handling increased considerably during the period, especially in the Port of Veracruz, and since costs did not increase proportionately, they achieved good financial results. The Servicios Portuarios of the Port of Veracruz (SERPOVER) company was liquidated in July 1991 and Puertos Mexicanos was put in charge of managing the port thereafter. The Servicios Portuarios of the Ports of Guaymas and Manzanillo declined to use some of the loan funds allocated to them and decided to procure their equipment with their own resources. Some of these funds were used by Puertos Mexicanos, and US$3.8 million was canceled because of the liquidation of this decentralized entity. The financial position of these ports may have deteriorated a little since project implementation, particularly in terms of operating ratios, because of the inclusion of depreciation of the new container terminals and their gantry cranes, for both wharf and yard. 6. LESSONS TO BE LEARNED We feel that the following main lessons can be learned from the implementation of this project: That the components to be financed by the loan proceeds need to be identified as precisely as possible during project preparation. * That an administrative unit needs to be set up to coordinate the activities of other departments involved in the loan and to assume responsibility for conducting all business with the World Bank. * That the World Bank should, in special cases, be more flexible in the application of the rules and conditions established in its regulations in order to avoid situations like the one that occurred with the Ansaldo company. * While requests for World Bank approval were generally answered in a timely fashion, there were some long delays. The response time therefore needs to be as short as possible. * That when counterpart funds and funds for supplementary works are assured, the project objectives can easily be met and even exceeded.  - 14 - * Finally, that the good relationships maintained with the World Bank staff in charge of the Project were key to its successful implementation.  MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) PART III: STATISTI CAL DATA TABLE 1: RELATED BANK LOANS Title | Loan No. | Year of Approval | Original Amount " Disbursed Camments Port Development 1964-ME 1972 20.0 19.74 Closed 1977. Preparation Project Las Truchas Steel Project 934-ME 1973 70.0 67.80 Closed 1977. Lazaro Cardenas Port built. Lazaro Carden Industrial 2450-ME 1984 76.3 38.25 Closed 1992. Port Project Source: IBRD Statement of Loans, July 31, 1993. Un TABLE 2: PROJECT TIMETABLE Title Date Planned Actual Date Idetification November 1985 Preparation November 1986 onwards Appraisal August 8-6 Novamber 23 - December 10, 1986 Negotiation April 8-7 April 4-8, 1988 Board Approval July87 May31, 1988 Loan Signature June 7, 1989 Loan Effictiveness May 4, 1990 Project Completion December 31, 1993 Loan Closing June 30, 1994 Source: IBRD Project Files.  - 16 - MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) TABLE 3: COMPARISON BETWEEN APPRAISAL ESTIMATES AND ACTUAL COSTS (Figures in US $ Million) l Appraisal Estimnates = Actual Costs Item Local Foreing Total Local Foreing Total A. Ports Rehabilitation and Equipment 1. Veracruz 4.8 7.5 12.3 17.8 16.6 34.4 2. Guaymas 3.1 3.8 6.9 0.7 0.5 1.2 3. Manzanillo 1.8 2.8 4.6 16.9 20.5 37.4 4. Tampico - Altamira 17.5 16.4 33.9 14.0 16.2 30.2 5. Lazaro Cardenas - - - 0.9 4.2 5.1 Subtotal 27.2 30.5 57.7 50.3 58.0 108.3 B. Dredge Rehabilitation 5.4 7.8 13.2 3.9 6.4 10.3 C. Technical Assistance 0.5 1.7 2.2 0.3 2.0 2.3 Total Baseline Costs 33.1 40.0 73.1 54.5 66.4 120.9 Physical Contingencies 2.9 3.3 6.2 1.6 1.0 2.6 Price Contingencies 4.2 6.7 10.9 2.4 2.0 4.4 Total Project Costs 40.2 50.0 90.2 58.5 69.4 127.9 Source: Staff Appraisal Report. Borrower's data and Project Files.  - 17 - MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) TABLE 4: COMPARISON BETWEEN APPRAISAL ESTIMATES AND ACTUAL FINANCING PLAN (Figures in US $ Million) __________________ A raisal_Estimates Actual Financtn Local Foreign Total Local Foreign Total Ports 20.6 - 20.6 38.1 - 38.1 IBRD - 50.0 50.0 - 46.2 46.2 Govermnent 19.6 22.5 42.1 20.4 23.2 43.6 Total 40.2 72.5 112.7 58.5 69.4 127.9 Source: Staff Appraisal Report, Borrower's data and Project files.  - 18 - MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) TABLE 5: ESTIMATED AND ACTUAL SCHEDULE OF DISBURSEMENTS Appraisal Actual Actual % of IBRD Fiscal Year Estimate Revised Time Disbursenents Revised Estinmates 1989 Demaber 31, 1988 11.0 1/ June 30, 1989 14.0 1990 Decenber 31, 1989 14.0 June 30, 1990 23.0 6.0 6.0 100% 1991 December 31, 1990 29.9 8.0 8.0 100% June 30, 1991 36.8 20.0 20.0 96% 1992 December 31, 1991 39.5 35.0 36.6 105% June 30, 1992 42.2 40.0 43.8 110% 1993 December31, 1992 64.4 43.0 43.8 102% June 30, 1993 46.6 45.0 45.1 100% 1994 December31, 1993 47.7 48.0 45.8 96% June 30, 1994 48.8 49.4 46.2 1995 December 31, 1994 49.4 50.0 June 30, 1995 50.0 1/ Including inibal deposit of US $6.0 million in the Special Account Source: Staff Appraisal Report, Borrower's data and Project Files.  - 19 - MEXICO PROJECT COMPLETION PROJECT PORTS REHABILITATION PROJECT (LOAN 2946-ME) TABLE 6: FINANCIAL POSITION - SUMMARY PORT 1993 1992 1991 1990 GUAYMAS Working ratio 0.91 0.79 0.91 0.88 Operating ratio 1.17 0.97 1.00 0.99 MANZANILLO Working ratio 0.80 0.84 0.83 0.76 Operating ratio 0.85 0.92 0.93 0.97 TAMPICO-ALTAMIRA Working ratio 0.60 0.80 0.70 N/D Operating ratio 0.70 0.94 0.85 N/D VERACRUZ Working ratio 0.73 0.77 0.47 N/D Operating ratio 0.84 1.06 0.91 N/D Source: PUERTOMEX Report. Date: October 1994  - 20 - MEXICO PROJECT COMPLETION PROJECT PORTS REHABILITATION PROJECT (LOAN 2946-ME) TABLE 7: INCOME AND EXPENDITURE STATEMENT (Figures in N$, Millions) 1993 1992 1991 1990 Gua,Was Income 14,874,773 23,545,359 24,529,801 21,061,452 Working Expenses 13,529,446 18,602,652 22,346,145 18,549,345 Operating Expenses 17,343,916 22,930,441 24,566,145 20,769,375 Working Ratio 0.91 0.79 0.91 0.88 Operating Ratio 1.17 0.97 1.0 0.99 Manzanillo Income 85,800,244 84,473,097 56,607,819 50,818,754 Working Expenses 68,863,644 71,262,006 46,952,206 38,813,535 Operating Expenses 73,173,222 75,571,584 46,952,206 43,123,113 Working Ratio 0.80 0.84 0.83 0.76 Operating Ratio 0.85 0.92 0.93 0.97 Tamnpico - Altamira Income 71,543,491 50,544,256 46,628,586 Working Expenditure 42,952,367 40,445,224 32,504,678 Operating Expenditure 50,227,344 47,720,201 39,779,655 Working Ratio 0.60 0.80 0.70 Operating Ratio 0.70 0.94 0.85 Veracruz Income 223,312,892 89,888,835 58,075,556 Working Expenditure 162,272,430 69,657,516 27,255,903 Operating Expenditure 187,828,631 95,213,717 52,812,104 Working Ratio 0.73 0.77 0.47 Operating Ratio 0.84 1.06 0.91 Source: PUERTOMEX Report. Date: October 1994  MEXICO PROJECT COMPLETION REPORT PORTS REHABILITATION PROJECT (LOAN 2946-ME) PUERTO: MANZANILLO TABLE 8. SAMPLE COST-BENEFIT FLOW 0 1 2 3 4 5 6 7 a 9 10 11 12 13 14 15 COSTOS 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2000 2009 INVERSION 24,81 MANTENIMIENTO Y OPERACION 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0 62 0.62 0 62 COSTOS TOTALES 24.81 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0.62 0 62 BENEFICIOS INGRESOS POR APROVECHAM. 1.40 1.57 1.76 1.97 2.16 2.36 2.57 2.70 2.94 3.15 3.37 3.61 3.86 4 13 4.42 4 42 INGRESOSTOTALES 1.40 1.57 1.76 1.97 2.16 2.36 2.57 2.75 294 3.15 3.37 3.61 3.96 4.13 4.42 4 42 AHORROS EN COSTOS DE MANIOBRAS 0.92 1.01 1.11 1.22 1.33 1.73 2.33 2.92 3.34 3,89 4.48 5.12 5 90 6 52 7.30 a i4 VALOR DE RESCATE - OBRA CIVIL 15 s1 BENEFICIOS TOTALES 2.32 2.59 2.96 3.19 3.50 4.09 4.90 5.57 6.29 7.04 7.85 8.72 9.65 10.65 I1 72 26 06 TIPO DE CAMBIO (PROM.JUN.94) 3.3607 EVALUACION COSTO-BENEFICIO: FLUJO DE EFECTIVO (22.49) 1.96 2.24 2.57 2.88 3.47 4.28 4.95 5.67 6.42 7.23 8.10 9.03 10.03 11.10 2744 FACTOR DE DESCUENTO(17.9%) 1.00 0.95 0.72 0.91 0.52 0.44 0.37 0.32 0.27 0.23 0.19 0.16 0.14 0,12 0.10 0 06 FLUJO EFECT FACT.DESCT. (22.49) 1.66 1.61 1.57 1.49 1.52 1.59 1.56 1.52 1.46 1 39 1.32 1.25 1.1a 1.11 2.32 VALOR PRESENTE NETO 0.09 BENEFICIOS'FACT.DESCT. 2.32 2.19 2.06 1.95 1.91 1.79 1.82 1.76 1.66 1.60 1.51 1.43 1.34 1.25 1.17 2 37 COSTOS'FACT.DESCT. 24.81 0.53 0.45 0.38 0.32 0.27 0.23 0.20 0.17 0.14 0.12 0.10 0.09 0 07 0.06 0 05 VALOR PRESENTE BENEFICIOS 28.06 VALOR PRESENTE COSTOS 27.98 TASA COSTO-BENEFICIO (V.P.B.N.P.C.) 1.00 INGRESO POP INFRAESTRUCTURA 1155.4246 1300142694 4454614422 162396794 17034466 1902431441 21304.308S7 2276466s3s 24321 66 2606720535 2606720535 256720535 2606720035 2567235s 25 052035 2O 3 31 NG POP INF RAESTA POR BUQUE 64u36347 NUMERO DE 4 U0 UES6 19 202 2z6 253 279 80 334 354 379 4c5 40 4s06 4065 "7 CARGA (1E50S) s543 6s5 72906 945 88770 97774 406574 114534 125516 30557 1