Mexico - Second Toll Transport Project

RETURN TO REPORTS DESK RESTRICTED | WITHIN | hLe C0PYJReport No. TO-460a ONE WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF A SECOND TOLL TRANSPORT PROJECT IN MEXICO January 19, 1965 Projects Department  APPRAISAL OF A SEOND TOLL TRANSPORT PROJECT IN i=EXICO TABLE OF CONTENTS Page Summary i-i I. INTRODUCTION 1 II. GETERAL TRANSPORT BACKGROUND 2 III. CMAENOS Y PUENTES FEDERALES DE INGRESOS Y SERVICIOS CONEXOS 5 A. Organization and Management 5 B. Present Activities 5 C. Present Finances 6 IV. THE PROJECT 9 A. Description of the Project 9 B. Design Standards 13 C. Status of Engineering and Execution of the Project 13 D. Cost Estimates 14 E. Local Currency and Foreign Exchange Cornponents 15 F. Project Expenditure Schedule and Disbursement 16 G. Contract Award and Equipment Procurement Procedures 17 V. FUTURE FINANCES AND PROGRAM FINANCING 18 A. Future Financial Results 18 B. Financing of the Development Program 19 VI. ECONOiaC JUSTIFICATION 22 A. General 22 B. Traffic Forecast 22 C. The Project Items 24 D. Benefits 26 VII. CONCLUSIONS AND RECO1 NDATIONS 27  - 2- Table of Contents (continued) Tables: 1. M4otor Vehicles registered in Mexico (1950-63) 2. Highway Network (Length, Surface, Expenditures 1956-62) 3. Actual Revenues from Toll Operations (1952-64) 4. Actual Income Accounts (1959-64) 5. Summary Balance Sheets (1960-64) 6. Iain Design Standards for Toll Roads 7. Design Standards for Toll Bridges 8. Project Cost Estimate 9. Forecast Revenues from To'l Operat-ons (1964-71) 10. Forecast Income Accounts (196L-71) 11. Program of Investments 12. Statement of Cash Flow Estimates (1964-71) 13. Debt Position (1964-71) 14. Traffic Forecast on Project Toll. Roads (196.4-80) Figures: 1. "Caxrninos y Puentes" Organization Chart 2. Diagrammatic Representation of lIexico-Queretaro Road Annex: 1. Bases of Computation for Toll Revenue Forecasts (1964-71) Maps: 1. Main Highway INetwork and Projects Facilities 2. Detailed Location of Project Facilities  1ExoO APPRAISAL OF A SECOND TOLL TRANSPORT PROJECT Summary i) The Government of Mexico, through its agency "Nacional Financiera S.A." and on behalf of "Caminos y Puentes Federales de Ingresos y Servicios Conexos," has requested the Bank to assist in financing the development of toll transport facilities. The Bank has already made a loan of US$ 30.5 million, inclusive of interest during construction on the foreign component, for this purpose in 1962 (317-SE). ii) The project, which is technically sound, consists of four toll roads, three toll bridges, additional lanes on an existing mixed toll and toll-free road and miscellaneous equipment. iii) The project is estimated to cost US$ 78.1 million equivalent (in- cluding interest during construction on the foreign component) over a period of four years (1965-196$). The Bank participation would be US$ 32 million equivalent to cover the foreign exchange component. Inclusive of the interest during construction on the foreign component this amounts to 41% of tihe total cost. iv) Mexico is engaged in a program of toll transport facilities to pro- vide faster and safer road transportation in congested areas. These facil- ities are paid for by the users so that the Government can devote more of its budgetary resources to road construction and maintenance in areas not yet adequately served. v) The M-inistry of Public Works !/(SOP) will be responsible for the planning and execution of the project; "Caminos y Puentes" will be respon- sible for its financing, operation and maintenance. Both organizations are adequately staffed and no outside consultants are required. vi) Reliable traffic forecasts indicate that the project is economically justified. From road user benefits alone the project items would generally yield economic returns of between 11% and 18%. The weighted average of all the returns would be 15%. vii) Cost estimates are acceptable, other than for the Penon-Texcoco road, for which the cost estimate and economic justification are subject to review. The foreign exchange percentage is realistic. The local currency cost of the project would be financed through a line of credit from the Banco Hipotecario. 1/ Secretaria de Obras Publicas - for brevity SOP hereafter  -ii- viii) "Cariinos y Puentes"ir present and future financial position is sound. Its net return on investments after completion of the project is ex- pected to averae 14%. ix) All road construction contracts would be awarded on the basis of international competitive bidding, except as otherwise approved by the Bank. x) The project is suitable for a Bank loan of US$ 32 million equivalent for a period of 20 years including a four-year period of grace. The co- Borrowers would be "Caminos y Puentes Federales de Ingresos y Servicios Conexos" and "Nacional Financiera S.A."  11 co APPRAISAL OF A SECOND TOL, TRANSPORT PROJECT I. INTRODUCTION 1. The Government of Mexico through its agency "Nacional Financierall, and on behalf of "Caminos y Puentes Federales de Ingresos y Serv_cios Conexos" 1/, has asked for the Bank's financial assistance to develop additional toll transport facilities. The project proposed consists of the construction of four new toll roads and three new toll bridges and the pro- vision of additional lanes to an existing mixed toll and toll-free route. The estimated total cost of the project, for which a Bank loan of US$ 32 million equivalent has been requested, is US$ 78.1 million equivalent. 2. In 1962 the Bank made its first loan of US$ 30.5 million - 317-14E (1962) - for toll transport facilities in rexico. At that time, the toll authority was named only "Caminos y Puentes Federales de Ingresos." Since then "Servicios Conexos" has been added to its title to permit it to engage in some non-toll transport activities. At the moment, these other zctivities are limited to a) the purchase of specializled heavy construction equipment that is rented to major construction projects being undertaken for the Govern- ment; b) the establishment of a plant for the production of special asphalt emulsion, and c) the construction of service centers alongside the toll roads for sale to private business. 3. In addition to Loan 317-1'2 the Bank has made two other highway loans to ilexico - Loan 268-IE (1960) (US$ 25 million) and Loan 35h->iE (1963) (US$ 40 million). These loans were for new construction, reconstruction and improvement of the general Federal highway system in various parts of the country. (See iNap No. 1 for the location of project items in the three pre- ceding loans.) Although the projects financed by the 1960 and 1962 Bank loans are about a year or so behind their original schedule, the standard of the works so far completed is very satisfactory. There is good reason to believe that the revised completion dates will now be met. 4. Experience under Loan 317-ME has brought out three problems so far. First, the pressure to provide under and over-passes to satisfy local vehicle, pedestrian and animal traffic has been greater than expected on some of the project roads. This has affected the completion of paving contracts. Second, the programming and timing of contract awards could be improved upon. And third, the acquisition of right-of-way has proved protracted in some "ejido" areas. 2/ These factors have contributed towards an increase in costs and to construction delays. 1/ Generally referred to hereafter for brevity as "Caminos y Puentes" 2/ "ejidos" are government-sponsored group settlements under a closely con- trolled system of cooperative farming. The farmers have use rights only in the land they occupy. They cannot sell or mortgage the lands, but the use rights can be transferred by inheritance writhin the family.  -2- 5. For the proposed project "Caminos y Puentes," which is responsible for the financing, operation and maintenance of the toll facilities, and the SOP, wihich is res-onsible for their planning, programming and execution have accepted that only those under and over-passes which are basic to the project will be eligible for Bank financing. These include over-passes for existing free Federal and State roads which would otherwise cross the toll roads at grade; over and under-passes for interchanges between the toll roads and existing free Federal and State roads; and under-passes for cattle and pedestrian traffic. Because the exact number and locations of all other over- passes that may ultimately be required cannot be fully determined in advance they will be financed entirely by "Caminos y Puentes0" Since the total cost of these over-passes is not more than 2-3% of the total cost of the project, this arrangement is acceptable. 6. The SOP is aware of the above problems which, to some extent arise from reasons beyond its control - e.g. the local construction industry which is so organized that one firm can rarely execute all stages of a road con- struction and by governmental social policies. During negotiations, however, the Government has given satisfactory assurance that the timing and program- ing of contract awrards in general will be improved by new procedures to facilitate the early acquisition of right-of-way for the project items0 As a result no particular difficulties are now anticipated in the execution of the project. 7. The project is, in part, an extension of work begun under Loan 317-HE and, in part, is integrated with some of the general highway improve- ment works under the two other highway loans. As such, the project fits logically into the continuing process of improving the Hexican highway system, and is consistent with the recommendations of the Bank mission which carried out "An Appraisal of the Development Program of Mexico.' (Report No. WIH-137a and, in particular, Vol. V Annex IV - Transportation). The pro- ject is self-financing and outside of the Government's budget. 8. This report is based on studies carried out by "Caminos yr Puentes" and the SOP for this project and for Loan 317-ME, and on the findings of a Bank appraisal mission Mwhich visited ilexico in September-October 1964. II. GENERAL TRANSPORT BACKGROUJND 9. The highway sector of the Mexican economy has grown significantly over the past decade or so as compared with the rail sector:  -3- 1952 1957 1962 Motor Vehlicles Registered 1/ - - i) Automobiles 100 154 231 ii) Buses 100 114 133 iii) Trucks 100 177 212 Gasoline consumption 100 147 187 Diesel/gas oil consumption 100 208 269 2/ Rpilway Traffic i) Ton-kms 100 129 131 ii) Passenger-inms 100 114 113 1/ Ton-inns and passenger-kms figures, wihich are more meaningful, will not be available until after the processing of data collected in a recent Census of Transport 2/ Estinate by PEi.-E (Petroleos Mexicanos) 10. In this period Gross Domestic Product (GDP) at constant prices has increased at an average rate of 6% p.a. and total population by some 3% p.a. Urban dwellers, who formed 43% of the total population ten years ago, now account for about 55% of the total. The Federal District (including IMexico City) has increased by over 2 million people to a population of 5.5 million today, making it one of the world's largest metropolitan areas. 11. In the urban areas, particularly those of central iexico, rising incomes and growing population have stimulated the demand for fresh frIits, vegetables, fish and other perishables and also made possible the payment of the higher charges involved in transporting these conunodities. The general progress of the economy has given rise to a growing middle class and has been accompanied by a rapid increase in the ownerslhip of private cars for both pleasure and business purposes (Table 1). The growth of the urban areas has also generated a demand for fast inter-city bus transport services which use toll roads where they are available. Foreign tourists either travelling in their ow,n vehicles or taking bus tours have increased greatly. Such visitors tend to take the main routes between major centers of interest. 12. A rapid growth in construction, manufacturing and service in- dustries has accompanied the development of the economy and the rise in population. Manufacturing industries, in particular, are increasingly con- cerned with production planning, inventory control and the rapid movement and turnover of high value goods. The growing emphasis on the service as- pects of transportation - speed, flexible and frequent schedules, specialized equipment, dainage control, less stringent packaging requirements, etc. - has resulted in a great increase in trucking, a large proportion of which is operated directly by the firms in these industries rather than by common carriers.  -4- 13. The general increase in highlay traffic of all kinds has over- loaded parts of the highway system and produced congestion on these routes. To provide for faster, more convenient and safer movemnent of the one million or so vehicles now in Mlexico the highway network has been improved in quality and extended (Table 2). Tbll facilities have been constructed on routes where traffic is especially heavy or the lack of bridges and ferries acts as a bottleneck. In the period 1955-62 some 7,830 million pesos (USQ 626 million equivalent) were spent on highways, of which 70' was for construction and 30% for maintenance. The amounts allocated for road maintenance are adequate and the quality of road maintenance work satisfactory. The total expenditures have been divided in the following proportions - Federal free roads, 64%; toll roads, 7%; state roads, 14%; and local roads, 15%. 14. W4hen an existing free road approaches its saturation the Government has the choice of improving the road or building an altermnative road, and financing the works through the budget or by tolls collected fro,i the users. Since there are many areas in the country not yet adequately served by roads, the Government considers that it would be undesirable to finance through the national budget all new roads or road imnprovements in areas already well served. vlhere road congestion is caused mainly by local traffic, the Government ts policy is to improve the existing free roads, and where highways are over- loaded with terminal-to-terminal freight, bus and passenger car traffic it prefers to build separate, limited access toll facilities with the free roads as alternatives. So far, road users appear willina to accept this policy and to pay for the time savings, safety and service benefits offered by such toll facilities. 15. Traffic on the 19,400 route-km Mexican railway system has increased more slowly than on the highways and at a rate below the increase in GDP. In 1963 total rail traffic amounted to over 14 billion ton-kms and some 4 billion passenger-kms. Rail freight traffic is characterized generally by the move- ment of large volumes of low value bulk commodities in full car loads over relatively long hauls - an ideal rail traffic situation. As a result the freight activities of the railway are viable. Highwray freight traffic, parti- cularly on the main and toll roads, consists by contrast of goods moving in small shipments over short hauls, or goods requiring special service condi- tions irrespective of length of haul, or goods for which time and its associated costs are signi-icant. Road-rail comkpetition for freight traffic is only marginal, especially for hauls below 500 km. Despite the favorable freight traffic environment the railways suffer large revenue losses for the usual litany of reasons - low passenger fares, the use of rail freight tariffs as an instrument for export promotion and for cost of living subsidies, uneconomic branch lines, etc. To put the railway system on a sound financial and commercial basis would necessitate overcoming administrative, fiscal, labor and social policy questions that are not amenable to easy shortrun solutions (see Bank Report }E-137a, Vol. V, Annex IV referred to in Paragraph 7 above). The new Government appears to be taking some of the first steps recommended in that Report to remedy the situation.  -5- III. CAXrNOS Y PUENTES FEDERAILES DE INGRESOS Y SERVICIOS CONTUOS A. Organization and ianagenent 16. A public body wvas created in 1952 to take charge of the then existing tw