Mexico - Rio Colorado Irrigation Project

M- 0 v ~~RESTRICTED Pi i t0PV7 Report No. P-578 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 The report may not be published nor may it be quoted as representing their views.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 REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. OF MEXICO FOR THE RIO COLORADO IRRIGATION PROJECT January 4, 1968  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVLOPMET REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A., OF MEXICO FOR THE RIO COLORADO IRRIGATION PROJECT 1. I submit the following report and recommendation on a proposed loan in the amount in various currencies equivalent to US$25 million to Nacional Financiera, S.A. of Mexico. PART I: HISTORICAL 2. Three of the eighteen loans made to date to Mexico were for irri- gation. They were Loan 275-ME of 1961 for $15 million, Loan 336-NTE of 1963 for $12.5 million, and Loan 45O-ME of 1966 for $19 million. 3. The project for the proposed loan was appraised by a Bank mission in February-MIarch 1967. Negotiations were held from December L to 8, 1967. Negotiators were Lic. Victor Navarrete, Subdirector of the Nacional Financiera, S.A., and Subsecretary of Hydraulic Resources, Ing. Salvador Aguilar Chavez; they were assisted by four members of the staffs of their organizations. 4. The proposed loan would increase the Bank's lending to Mexico to $650.1 million (net of cancellations). Mexico has received no IDA credits. The following is a summary of Bank loans to Mexico as at November 30, 1967:  -2- Loan Year Borrower Purpose Ar.ount Uindisbursed ($ million) 1949-1962 Loans fully disbursed 386.6 nil (less cancellations) 336-iE 1963 Nacional Financiera, S.A. Irrigation 12.5 5.8 354-SE 1963 Nacional Financiera, S.A. Roads 40.0 8.3 401-IE 1965 Caminos y Puentes Federales de Ingresos and Niacional Financiera, S.A. Toll Transport 32.0 17.1 430-ME 1965 Nacional Financiera, S.A. Agricultural Credit 25.0 14.2 436-ICE 1965 Comision Federal de Electricidad and lNacional Financiera, S.A. Power 110.0 20.5 450-oE 1966 Nacional Financiera, S.A. Irrigation 19.0 18.9 Total (less cancellations) 625.1 Of which has been repaid to Bank and others 119.1 Total now outstanding 506.0 Amount sold 45.5 Of which has been repaid 38.1 7.4 Total now held by Bank 498.6 Total undisbursed 84.8 5. Construction and procurement have been generally proceeding satis- factorily. Delays have occurred in carrying out the 1965 power sector loan without leading to shortages of supply and the Closing Date of loan 836-ME is being extended from June 30, 1967, to March 1, 1968, following approval by the Executive Directors of my recommendation in R67-137. A part of the construction in one district financed under the 1963 irrigation loan has been postponed pending completion of studies to improve drainage and crop- ping patterns. Construction under the 1963 highway loan is now expected  - 3 - to be completed in late 1968, two years behind schedule, because of delays caused by unusually heavy rains, limited budgetary allocations, and a larger volume of work than had been estimated on the basis of the preliminary en- gineering. 6. Loan negotiations for a third highway project have been completed and the loan is expected to be ready for presentation very shortly. Mexico has also requested further Bank financing for the power sector and appraisal is awaiting additional information; in the meantime a general understanding is being worked out with major supplying countries for joint financing for the power sector project and for three projects in Colombia. 7. Up to December 26, 1967, IFC had committed a total of $21.7 million in Mexico, of which $4.2 million was still held by IFC at that date. As a continuance of IFC's longstanding relationship with Compania Fundidora de Fierro y Acero de Monterrey, S.A., a recommendation has been made to the IFC Board for financing a further expansion, which would involve maximum potential commitments of about $7.3 million. PART II: DESCRIPTION OF THE PROPOSED LOAN 8. BORROWER: Nacional Financiera, S.A., a financial agency of the Mexican Government which, under the existing Iexican legislation, has to be the borrower or co-borrower under Bank loans. GUARANTOR: United Mexican States. AMOUNT: The equivalent in various currencies of $25 million. PURPOSE: To assist in the rehabilitation of the Rio Colorado Irrigation District. AMORTIZATION: 20 years, with no repayments during the first 73!7