Announcement of One Hundred Twenty-Five Million US Dollars Electric Power Loan in Mexico on February 25, 1970

INTERNATIONAL BANK FOR .RECONSTRUCTION .AND DEVELOPMENT 1818 H STREET, N.W., WASHiNGTON D. C. 20433 TELEPHONE: EXECUTIVE 3-6360 Bank Press Release No. 70/12 Subject: $125 million electric power February 25, 1970 loan in Mexico A World,Bank loan of $125 million, combined with some $40 million from ex- port financing institutions in major supplier countries, will help to finance Mexico's nationwide electric power expansion program during 1970-71. With the loan announced today, World Bank lending in Mexico totals $957 mil- lion, making Mexico the Bank's second largest borrower, after India. Of the total, $580 million has been for Mexico's continuing power expansion program to aid the rapid and sustained economic growth which has brought Mexico to the forefront among Latin American countries. The Mexican economy has evolved from a primary- • production type based on agriculture and mining to a more diversified structure \\\ \\ wit\\manufacturing now the largest sector. '\ This growth has been possible because basic services have been provided to support the broad range of industrial and ot·her activities. One of the; most important has been a secure and expanding . power supply to keep pace with the annual 11% increase in demand. The public power sector of Mexico, which at the end of- 1968 had an installed capacity of 4,904 megawatts, is operated through the Federal Electricity Conmission (CFE) and Compania de Luz y Fuerza del Centro (Centro), controlled by CFE. CFE operates all the major systems of the country including the Central System supply- ing the Mexico City area, which is serviced through Centro. During the 1970-71 period of the power expansion program, ~onstruction is ex- pected to proceed on 2,984 MW of generating capacity, mainly in hydroelectric and steam plants, 5,497 miles of main transmission lines, 10,200 MVA of main transformer • stations, the expansion of distribution networks and rural electrification. Unlike /more Bank P.R. No. 70/12 - Mexico-Electric Power 0 - 2 - the rest of. the country, the Central System operates on SO-cycle frequency, and provision is made in the program for selected large industrial consumers on the (i":) • outskirts of Mexico City to convert to 60 cycles as a start on frequency uriifi- cation. Total capital investment during the 1970-71 period is expected to be $491.4 million, which includes the programs of both CFE and Centro. The Bank loan and joint financing announced today will be applied to the foreign exchange costs. The remaining foreign exchange required will come from the balance of earlier Bank and joint financing ($36 million), suppliers' credits ($19 million), and external ,resources ($57 million). The remaining financing will be covered by internal cash generation and contributions from public sources in Mexico and from consumers. The major supplier countries which have agreed. to provide joint financing of procureme,nt undertaken under the present Bank loan are Belgium, Canada, France, Germany, Italy, Japan, Sweden, Switzerland, the United Kingdom and the United • States. Financing will be provided on a 50-50 basis by the Bank and financial institutions of the participating countries for orders of more than $200,000 placed in each country, provided such orders in that country total $1 million or more.. The Bank will finance 100% of smaller orders for equipment placed in these countries, as well as orders placed in countries not providing joint finan- cing. The proceeds of the loan will also be used in financing the foreign ex- change component of orders awarded to local suppliers after international com- petitive bidding. Mexican suppliers will enjoy a 15% margin of preference with respe~t to offers from foreign suppliers. The amount of loans from supplier countties will be known precisely only when contracts have been ~warded after international competitive bidding, but indications thus far are that at least $40 million will come from this source. This techni,lue of financing, also used in the Bank's. two most recent power loans in Mexico, provides a mechanism through which bilateral export credits &re used to finance goo4s procured under unrestricted international competition for projects prepared ahd· executed under the supervision of the Bank. The Bank loan will be made jointly to Nacional Financiera,., S.A., th~ 6:-£:ti- cial financing institution of the llexican Government, and the Federal Electricity Conmission, and will bear the guarantee of Mexico. It will be for a term of 20 years, including 4 years of grace, with interest at 7%. - 0 - •