Mexico - Chiapas Rural Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4022-ME REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$ 22.0 MILLION TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A CHIAPAS RURAL ROADS PROJECT March 29, 1985 This document has a restricted distribution and may be used by recipients only in the performance of their oflicial duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Unit - Peso (Mex$) On March 31, 1985, the exchange rate in the controlled market was US$1 = MexS208.79; the freemarket exchange rate stood at US$1 = Mex$226.85. Both exchange rates are currently sliding at a rate of Mex$0.21 per day against the US dollar. Fiscal Year January 1 - December 31 Weights and Measures Metric: British/US Equivalent I meter (m) = 3.28 feet (ft) 1 kilometer (km) = 0.62 mile (mi) 1 kilogram (kg) = 2.20 pounds (lb) I metric ton (m ton) = 2,205 pounds I liter (1) = 0.26 gallons (gal) Abbreviations ACF Average Cost of Funds CECADE Economic Development Training Center (SPP) CONASUPO National Marketing Organization for Basic Foods COPLADE State Development Planning Committees COPLAMAR National Coordination Agency for Marginal Areas CUD/CUC Federal/State Coordinating Agreements EFF Extended Fund Facility ERR Economic Rate of Return ICB International Competitive Bidding IFAD International Fund for Agricultural Development LVA Value Added Tax JLC Local Roads Council LCB Local Competitive Bidding LIBOR London Inter-Bank Offer Rate N de M Ferrocarriles Nacionales de Mexico, (National Railways of Mexico) NAFINSA Nacional Financiera, S.A. NDP National Development Plan PEMEX Mexican Petroleum Monopoly PDR Regional Development Program PIDER Integrated Rural Development Program PLANAT Rainfed Agriculture Program SAHOP Secretariat of Human Settlements and Public Works SAP Special Action Program SARH Secretariat of Agriculture and Water Resources SCT Secretariat of Communications and Transport SED[. Secretariat of Urban Development and Ecology SHCP Secretariat of Finance and Public Credit SPP Secretariat of Programing and Budgeting FOR OFFICIAL USE ONLY MEXICO CHIAPAS RURAL ROADS PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.A. (NAFINSA) Guarantor: United Mexican States Project Secretariat of Communications and Transport (SCT) Executing Agency: Amount: US$22.0 million equivalent. Terms: Repayment in 15 years, including three years of grace at the standard variable interest rate. Project The proposed loan is being presented simultaneously with an Description: agriculture development project as part of the Bank's support to the initial phase of the Government's development program for the State of Chiapas. The Chiapas Development Plan is designed to address the main constraints to the development of the State and to implement economic as well as social invest- ments. The areas of influence of the two proposed projects would fit well into the priority areas of the Chiapas Develop- ment Plan. The proposed project would support the initial stages of this Plan through the execution of a rural roads construction, rehabilitation, improvement and maintenance program in coordination with other simultaneous social and economic development efforts. The project provides for: (i) construction of about 1,000 km of rural roads; (ii) rehabilitation and improvement of about 2,000 km of existing rural roads; and (iii) consulting services and related technical support to carry out detailed engineering and upgrade the administrative and implementation capabilities of the executing agency. Beneficiaries: The intended beneficiaries of this project are State rural residents lacking adequate road access. The areas affected would be predominantly small farm communities for which agri- culture is the main source of income. A significant propor- tion of the beneficiaries are expected to be from the State's large, ethnically distinct indigenous population. The initial year's program would serve about 40,000 people. The benefits would be realized through increased agricultural production. In addition, local residents would benefit through improved access to employment opportunities elsewhere in the state and better access to, and delivery of, social services. 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. - ii - Risks: The project faces the following risks: The first one flows from the fact that the institutional framework for coordination of Federal and State level planning and implemen- tation activities under the Chiapas Program is new and largely untested in practice. This institutional risk may also have implications for the provision of adequate and timely counter- part funding. To address this problem, the Government is taking steps to improve the institutional and budgetary capabilities of the executing agencies involved. In addition, there are two types of risks which could affect the realization of project benefits: (i) agricultural increases may not be realized because of delay in parallel actions such as extension services, seeds and fertilizer provision and credit; and (ii) road employment and construction targets may not be met because of a possible shift to equipment-intensive methods and/or budgetary limitations. By preparing the project in close coordination with the parallel Agricultural Development Project and applying relatively conservative assumptions to production potential, this risk expressed in (i) would be minimized. With regard to (ii), the program scope takes into consideration the local capacity for execu- tion and historic construction levels. Also, project prepara- tion has focused upon defining when labor-intensive methods are most appropriate. Estimated Costs: Local Foreign Total --(USS millions)---- I. Investment Program Rural Roads Construction 18.7 6.3 25.0 Rural Roads Rehabilitation/Improvement 5.2 1.7 6.9 Consulting services and technical assistance 1.1 0.4 1.5 II. Project Base Cost 25.0 8.4 33.4 III. Price Contingencies 6.2 2.1 8.3 IV. Total Project Cost 1/ 31.2 10.5 41.7 Financing Plan Government 19.7 - 19.7 Bank 11.5 10.5 22.0 Total Project Cost 31.2 10.5 41.7 1/ net of taxes - iii - Estimated Disbursements Bank FY 1986 1987 1988 1989 1990 1991 (USS millions) Annual 2.0 3.9 5.1 4.8 3.8 2.4 Cumulative 2.0 5.9 11.0 15.8 19.6 22.0 Estimated All subprojects to be financed under the loan would be Rate of appraised according to agreed technical, economic and social Ieturn: criteria and would, in general, have a minimum estimated rate of return of 12%. Roads in less productive areas, serving substantial populations but not meeting the minimum economic criteria applying traditional evaluation procedures, would be reviewed on a social benefits basis. For such roads, the maximum cost per person served should not exceed US$450, and the total cost should not exceed 15% of the rural roads program. Rural road rehabilitation works would not require economic evaluation, but selection of subprojects would be based on a technical review of existing conditions, and the confirmation of traffic and road utilization. Staff Appraisal Report: Report No. 5494-ME, dated March 25, 1985 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO TRE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO NACIONAL FINANCIERA, S.A. WITH THE GUARANTEE OF UNITED MEXICAN STATES FOR A CHIAPAS RURAL ROADS PROJECTI/ 1. I submit the following report and recommendation on a proposed loan to Nacional Financiera, S.A., (NAFINSA) with the Guarantee of United Mexican States for the equivalent of US$22.0 million to help finance a Chiapas Rural Roads Project to be carried out by the Secretariat of Communications and Transport (SCT). This project is associated with a Chiapas Agricultural Development Project and together they represent the Bank's support for the initial phase of the Chiapas Development Plan. The loan would be repaid over 15 years, including 3 years of grace, at the standard variable interest rate. PART I - THE ECONOMY 2. An economic report on Mexico (Mexico: Recent Economic Developments and Prospects, No. 4996-ME) was distributed to the Executive Directors on May 14, 1984. The report's main conclusions and recent economic developments are summarized below. 3. Following an import-substitution growth strategy, Mexico experienced some two decades of high and stable growth after the early 1950s. By the late 1960s, however, Mexico had largely exhausted the "easy" and efficient possibil- ities for import substitution, and faced a choice between outward-oriented growth or continued inward-directed growth led by expansion of public sector expenditures and rising subsidies and protection of inefficient domestic production. By 1972 the choice was made to pursue the latter course. Public sector expenditures as a percent of GDP more than doubled between 1970 and 1982, from 18.8% to 42.5% (Report No. 4996-ME, p. 114). By 1976 Mexico experienced a serious financial and economic crisis, followed by an even more serious one six years later. The discovery of large oil reserves in the mid-1970s led Mexico to a quick economic recovery, but it also removed the urgency of policy reforms. Primary among these was the need to reduce protection and the anti-export bias of the trade regime to thereby move over time toward greater efficiency and international competitiveness. Oil revenues also temporarily helped finance the public sector deficit and reduced the need for greater fiscal restraint. 1/ Parts I, II and III of this Report are identical to the corresponding sections of the President's Report for the Chiapas Agricultural Development Project (Report No. P-4023-ME) being distributed at the same time as this report. -2- Developments During 1977-1982 4. The stabilization measures initiated in 1977 and the discovery and exploitation of large oil resources in the mid-1970s allowed the Lopez Portillo Administration (Jan. 1977 - Dec. 1982) to overeome the serious financial crisis of 1976 and to start working on structural, social and economic problems, including poverty, income and wealth inequality, unemployment, regional imbalances and relatively slow agricultural growth. In the early years of that Administration (1978-80) GDP growth was high (8.5% a year), 2.5 million jobs were created, domestic consumption recovered, and the share of investment and savings in GDP surpassed historical levels, but the economy became increasingly overheated. 5. Rapidly rising public expenditures unmatched by revenues led to increasing public deficits. While inflation rose, no significant pressure was felt to adjust the exchange rate, thanks to the oil earnings and the relative ease of obtaining foreign finance. By mid-1981, the economic situation began to mirror the scene prevailing before the 1976 financial crisis. The current account deficit of the balance of payments reached 5.2% of GDP, while the deteriorating international oil market conditions caused large revenue shortfalls with respect to budget expectations. The public sector deficit rose to just under 15% of GDP. Non-oil exports dropped, and the trade deficit reached record levels. External borrowing was used to finance part of the domestic fiscal deficit and to defend the exchange rate. Mexico's foreign debt increased rapidly, at a time of high and rising international interest rates. A stabilization program initiated by the Government in mid-1981 was not sufficient to redress the growing fiscal imbalance, the high cost of foreign loans and the increasing private capital flight fueled by the public's anxiety over Mexico's financial troubles. 6. The crisis came to a head in 1982. In February, as capital flight intensified, the Bank of Mexico had to stop supporting the peso, which then experienced a 40% devaluation in dollar terms. A large wage adjustment granted in March 1982, which tended to undo the effects of the devaluation, and continuing slack in the oil market kept the balance of payments under strain. Under the circumstances, the international banking community became reluctant to commit new funds to Mexico, in the amounts required. These factors led to a second devaluation of 35% in August 1982, while the acute shortage of foreign exchange forced the Government to suspend the amortization payments of most of Mexico's external public debt pending a broader agreement on its refinancing. Capital flight continued as private sector confidence was shaken by the nationalization of the banks in September 1982, and the mandatory conversion of US dollar deposits into pesos. Also put into effect were a generalized system of exchange controls and quantitative trade restrictions covering an unprecedented 100% of imports. Recent Developments 7. The Administration of President de la Madrid, that began its term in December 1982, lost no time in taking steps to recover domestic and external - 3 - confidence, and stabilize the public sector and external finances. The Government's stabilization program supported by an EFF agreement, approved by the IMF in December 1982, laid the basis for restoring economic stability and for the re-negotiation of that part of Mexico's public external debt on which amortization payments had been discontinued in August 1982. Commercial banks agreed to restructure some US$19 billion of public sector debt and provide US$5 billion in net new loans for 1983. All obligations falling due between August 23, 1982 and December 31, 1984 were restructured over an eight year period, starting from January 1983, with a grace period of four years and at an interest rate of 1-7/8 percentage points over LIBOR (or 1-3/4 over the New York prime rate). The US$5 billion syndication had a 6-year maturity, with a 3-year grace period, at a spread of 2-1/4 over LIBOR (2-1/8 over prime). The restructuring exercise included an understanding that the international banks would maintain their exposure to the Mexican banks that had been nationalized. At the same time, it provided a mechanism that would eliminate 1982 private sector interest arrears and facilitate payment of the rescheduled principal on such debt. 8. A new two-tier exchange rate system was introduced, with a controlled market for imports, most proceeds from merchandise exports (except those of in-bond industries) and debt related transactions, and a free market for all other transactions including those relating to tourism. The controlled rate was originally set at Mex$95 = US$1, a depreciation of some 35% in relation to the previously prevailing ordinary rate of Mex$70 per US dollar. It depreciated at a rate of 13 centavos a day until December 1984, when the daily slide was raised to 17 centavos. The free market rate had remained at about Mex$150 per dollar until September 1983, when the authorities decided to let it slide as much as the controlled rate. The differential between the two rates, which in December 1982 stood close to 60%, is now down to less than 10%. Over the past two years, the peso has gradually appreciated in real terms as inflation in Mexico remained high. The Government increased the rate of slide of the peso from 13 centavos a day to 17 centavos in December 1984 and to 21 centavos early March 1985, in order to bring it closer to the expected inflation differential between Mexico and its trading partners. Domestic deposit interest rates were also raised in early March 19B5 from an average of about 45% to nearly 50%. 9. Under the IMF Agreement, the Administration committed itself to a drastic reduction of the public sector deficit, from 18.0% of GDP in 1982 to 8.5% in 1983, 5.5% in 1984 and 3.5% in 1985. Substantial progress has been made during the past two years in meeting the program objectives although the targets for 1984 were not fully met. The public finances were strengthened considerably and the public sector deficit was reduced to 8.7% of GDP in 1983 and an estimated 7.4% in 1984. The main reason for the higher budget deficit than the 1984 target was the much higher than expected interest payments on the domestic debt. Curbs on expenditures were wide ranging. However, recent estimates suggest that real public investment -- encompassing states and local governments -- may have been well in excess of the targets for 1984. The authorities have given priority to completing projects that were already far advanced and to those that were important for employment, equity, or foreign exchange earnings. Nonetheless, public investment expenditures are estimated to have declined to about 7% of GDP in 1983-84, well below the 1982 level of 11.7%. The fiscal performance was also aided by significant price increases for nearly all public goods and services, including petroleum products, electricity rates, food, etc. The Government has committed itself to a substantial reduction and eventual elimination of most subsidies, including those provided in the form of low interest rates. 10. The balance of payments experienced a major turnaround in 1983 with the current account moving from a deficit of almost US$5 billion in 1982 to a surplus of US$5.5 billion. The strength of the current account and the availability of external finance permitted Mexico to replenish its international reserves while paying a large part of the arrears that had accumulated in 1982. The net use of foreign financing by the public sector was US$4.2 billion for the year--below the ceiling of US$5 billion under the stabilization program. The errors and omissions account of the balance of payments dropped from US$8 billion in 1982 to an estimated US$1.4 billion in 1983, largely reflecting the decline in unrecorded capital outflows. The swing in the current account was mainly the result of a very sharp contraction of merchandise imports, to US$7.7 billion representing a decline of about US$7 billion from their 1982 level. The recession, the large devaluation of the peso and the quantitative restrictions all contributed to this. The balance of payments remained strong in 1984, with a current account surplus of US$3.7 billion, and a further US$2.5 billion were added to the nation's foreign exchange reserves, which at the year's end are estimated at about 7J months of imports. Although imports recovered considerably, a rapid rise in non-oil exports, particularly in the first quarter of 1984, ensured that the trade surplus remained at the same level as in 1983, i.e., about US$13 billion. Growth in tourism and in-bond industry was also strong, and helped in alleviating unemployment. These favorable external trends during late 1983 and early 1984 weakened in mid-1984, owing to an appreciating real exchange rate. 11. Fighting inflation remains the pivot of the Government's stabilization program. Although the Government's own inflationary targets have been missed by wide margins, the rate of inflation continued to decline through mid-1984. It declined from a rate of about 100% in 1982 to 80% and 59% in 1983 and 1984. The main factors in this were restrained fiscal and monetary policies and moderate wage adjustments. The flow of savings into the banking system continued to rise, reflecting the beneficial influence of the exchange rate and interest rate policies. The impact of the severe and sudden cuts in public expenditure and imports on economic growth in 1983 was serious when GDP declined by over 5%. However, the economic recovery in 1984 was stronger than the Government's expectations: GDP is estimated to have risen by about 3.5% compared to the earlier estimate of only 1%. Since the latter half of 1984, fiscal, monetary, and external trends have signaled a possible resurgence of inflationary pressures. - 5 - 12. The Government also took steps to regain the confidence of both domestic and foreign private investors. These included efforts to deal with the problems of private external debt, procedures to compensate owners of nationalized banks, and a more flexible application of the foreign investment law. Negotiations with commercial banks and other private creditors have been completed for the refinancing of nearly half of the total of US$11.6 billion of private sector obligations at stretched out maturities varying between 6 and 12 years, with 3- to 4-year grace periods. Moreover, the Goveinment undertook the restructuring of Mexican private sector obligations guaranteed by official credit agencies abroad. The Government has also transferred back to private ownership most of the 400 private firms that were controlled by the commercial banks prior to their nationalization. These measures and announcements have been beneficial, but more remains to be done to restore confidence of Mexican entrepreneurs and foreign investors. The Government realizes that this is an issue of the greatest importance as economic recovery beyond the current stabilization period will depend critically on the resumption of vigorous private investment. 13. The general improvement in the Mexican economy has been widely noted, particularly by the international banking community. Mainly for this reason, the Government's 1984 borrowing of US$3.8 billion from commercial banks carried much more favorable terms than the borrowing in 1983 (10 year maturity, 5-3/4 year grace period, and a spread -if 1% over LIBOR or 1-1/8% over prime). The negotiations between the Goveriment and foreign commercial banks on the rescheduling of foreign debt have been virtually completed. The draft agreement, covering close to US$50 billion, has been submitted by the Banks' Advisory Group (consisting of the 13 largest lenders) to some 500 smaller, regional banks for their acceptance. Under the proposed terms, the previously not-rescheduled debt (amounting to about $20 billion), which is due for repayment in 1985-90, will have its maturities stretched over fourteen years. The maturities of the previously rescheduled debt coming due in 1987-90 will be stretched over eleven years. The 1983 syndicate loan of $5 billion will be restructured, after prepayment of $1 billion, to carry terms identical to the 1984 syndicate loan. In summary, the pending rescheduling agreement will stretch maturities of US$50 billion public debt in such a way that the debt service remains virtually constant between 1985-1998, in contrast to the present situation where 75% of the debt service is due in 1986-89. The banks will have the choice of LIBOR, a domestic reference rate, or a fixed rate. These terms are based on the understanding that the Government will continue to adhere to prudent economic policies.2/ Medium-term Prospects 14. The Government's strategy, as outlined in the National Development Plan (NDP) for 1983-88, combines special efforts to recover from the present crisis with a longeL-term perspective on regaining balanced and stable growth 2/ As of this writing, the rescheduling agreement was expected to be signed by end-March, following the agreement with the IMF on the third year EFF, announced March 25, 1985. - 6 - to overcome structural problems. The main problems facing Mexico in the years ahead include the still very high rate of population growth (2.6% estimated for 1983) together with an even higher rate of labor force growth (a little under 4%), slow growth in agriculture, poverty, a highly skewed interpersonal and interregional income distribution, and an overly oil-dependent economy with a strong anti-export bias. 15. The medium-term strategy presented in the NDP focuses on the need for structural changes in the economy including a greater export orientation through revision of external trade policies, poverty alleviation through basic needs policies and improvement in labor absorption, and decentralization of economic activity. The basic elements of policies to address structural problems are mentioned in the NDP and further details on specific programs and schedules for policy adjustments are provided in the sectoral plans which were prepared subsequently. 16. Mexico's medium-term prospects for recovery and stable economic growth are reasonably good, provided economic management continues to be prudent, private sector confidence is restored, and the international environment remains favorable. Adequate domestic policies include inter alia continued efforts to reduce the fiscal deficit, liberalize trade and minimize price distortions. Restoration of private sector confidence is crucial since only a strong and dynamic private sector will be able to raise investment from the present depressed levels and to supply the increasing non-oil export surplus required for the resumption of growth. As regards the external environment, the commercial banks are expected to maintain their exposure in Mexico in real terms, and foreign markets to be open to Mexico's non-oil exports. Mexico will benefit directly from a continuing fall in interest rates in the world financial markets (a one percentage point drop means a savings of about USS800 million in overall interest payments which compares to a loss of $550 million in gross export revenues that would result from a one dollar drop in the export price of oil). 17. Under reasonably favorable external and domestic conditions, Mexico's economic growth could reach a sustainable 6% a year--the post-War average for Mexico --towards the late 1980s. This growth would materialize through a sustained redirection of the economy toward a more outward-oriented growth pattern. Fiscal discipline, in the absence of improved domestic efficiency and export development, is likely to entail a prolonged period of slow growth, characterized by insufficient labor absorption in internationally competitive activities, by domestic price distortions, and by continued need for subsidies. External Debt and Creditworthiness 18. Mexico's external public debt increased by about US$4 billion during 1983 and by about a similar amount in 1984. With an expected net new borrowing of some US$3 to US$4 billion a year, the ratio of external debt to GDP would decline steadily from 41% in 1984 to 33% by 1990. The debt service ratio, after the proposed rescheduling, is projected to peak at 47% in 1988, thereafter it gradually declines to about 25% in 1995. - 7 - 19. At the end of 1983, the last year for which a comprehensive external debt report is available at this time, the Bank's share in Mexico's debt was 4.3% (excluding undisbursed). The Bank share in Mexico's total public external debt service payments during that year was 4%. In view of the good medium and long term potential of its economy and the prospect of continued pursuit of sound economic policies by the present Administration, Mexico is considered creditworthy for IBRD borrowing. PART II - BANK GROUP OPERATIONS IN MEXICO Bank Operations 20. As of February 28, 1985, Mexico had received 85 loans from the Bank amounting to US$6,831.3 million, net of cancellations and terminations; of these, 58 loans totalling US$3,495.2 million were fully disbursed. The Bank held US$5,488.8 million, of which US$2,031.7 million had not yet been disbursed. Some 42% of Bank lending has been for agriculture and rural development, 23% for industry, 11% for power, and 13% for transportation; the remaining 11% has been for water supply, tourism, urban development, vocational training and pollution control projects. Annex II contains a summary statement of Bank loans as of February 28, 1985 21. Of the US$6.83 billion total lending, about US$3.5 billion was for establishing or strengthening institutions for channelling credit to areas where credit supply was deficient or non-existent, and setting up in the com- mercial banking system the ability to carry out project-related appraisal of investments in agriculture, industry and tourism. These credit programs have facilitated lending to low-income farmers and small- and medium-scale industrial and tourism enterprises based on productive investment plans, rather than credit granted on the basis of collateral. 22. The Government arranged adequate budget financing in the years 1978 to 1981, which significantly improved project implementation. Government and Bank officials met periodically to review project implementation, and greater attention was focused in Mexico on project monitoring. As a result of these measures, most of the Bank-assisted projects were being implemented satisfactorily until mid-1982 and disbursements rose from US$91 million in FY78 to US$448 million in FY82. However, the present financial crisis is again causing delays in the provision of counterpart funds, consequently, disburse- ments in FY83 declined to US$389 million. A Special Action Program (SAP) was established in early 1983 to help the Government by alleviating the counterpart funding constraints on development projects, and 18 Bank financed projects are receiving support under the Program. Partly as a result of the SAP, disburse- ments during 1984 improved significantly at US$528.87 million or 35% over disbursements in 1983. -8- IFC Operations 23. As of February 28, 1985, IFC had made investment commitments in 27 companies in Mexico, for a total of US$753.9 million, of which US$562.5 million had been sold, repaid or cancelled. A summary statement of IFC investments is presented in Annex II. IFC has been working together with the Bank in preparing proposals to establish a facility for provision of foreign exchange financing to private sector companies for the importation of machinery, equipment and spare parts required for production of exportable products, for efficient import substitution and for improvements in -he utilization of their existing productive capacity. IFC approved a US$100 million facility (including funds mobilized from foreign commercial banks) in 1983, which is providing finance for fixed investments of a larger size than those assisted under the Bank loan for an Export Development Project. Bank Strategy 24. The main objectives of Bank lending in Mexico in the past eight years have been to: (a) support policies and programs leading to a wider distribu- tion of the benefits of economic growth; (b) help finance projects that, di- rectly or indirectly, contribute significantly to output and employment; (c) help reduce Mexico's urban-regional imbalances; and (d) help free bottlenecks which prevent rapid growth. More recently, however, in response to Mexico's requirements following the 1982 economic crisis, the Bank, in close cooperation with the IMF, also supported the Government's stabilization program through assistance for export promotion and intensified and broadened economic and sector work. As for medium term prospects, the volume and composition of Bank lending to Mexico would be related to progress in the implementation of policy reforms needed for structural economic adjustments, through broad policy conditionality affecting the entire lending program or important parts of it. Specific policy reforms that are being pursued through a dialogue with the Government, to be conducted in parallel with the processing of lending operations, would cover priority macro-economic and cross-sectoral issues, such as interest rate policy, energy pricing, subsidy reduction and export development. 25. Because of the difficult structural problems of agriculture and the sector's crucial importance for the one-third of the nation's population living in the rural areas, the Bank has made agriculture the leading sector for its lending. The Bank's agricultural lending program in Mexico has four goals: first, to help increase productivity of presently cultivated lands in general; second, to give emphasis to improving the productivity of small farmers; third, to complement infrastructure investments with support services, such as extension, marketing programs and credit; and fourth, to promote employment- generating investments in rural areas. The Bank has made 14 loans in FYs78-83 totalling US$1,829.4 million for irrigation, rural development and agricul- tural, agro-industrial and livestock credit programs. A US$175 million loan for a rural development project and a US$180 million loan for an irrigation rehabilitation project were approved by the Executive Directors in FY82, and a - 9 - US$138.4 million loan for San Fernando rainfed agricultural development was approved in early FY83. A US$115 million loan for marketing perishables was approved by the Executive Directors in April 1983 and a $300 million Eighth Agricultural Credit Project in June 1984. Projects for irrigation rehabilitation, extension and research (seed multiplication) and agricultural credit are in various stages of preparation. 26. Bank lending for industry has aimed at: (a) reduction of the balance of payments deficit; (b) decentralizing industrial activities away from the major, increasingly congested, urban areas; and (c) promoting greater employ- ment. A steel project which the Bank helped structure and finance is now operating in a previously underdeveloped area on the west coast of Mexico, and the city in which it is located, Lazaro Cardenas, is developing into a new growth pole. Four loans for industrial projects to promote the development of small- and medium-scale industrial enterprises, to finance expansion of small- and medium-scale mining, and to support an industrial equipment fund (FONEI) were approved by the Executive Directors in FY978-80. A US$90.0 million loan for a vocational training project, which is assisting a program to increase the supply of skilled workers and technicians, a US$152.3 million loan for the development of a capital goods industries project and a US$60 million loan for pollution control were approved by the Executive Directors in FY82. A modification in the capital goods project was approved by the Executive Directors in early 1983 to set up a pilot export development fund to help satisfy the foreign exchange needs of Mexican exporters. A US$350 million loan for an Export Development Project and a US$175 million loan for a Third Small-and Medium-Scale Industry Development Project were approved by the Executive Directors in FY83. Follow-up projects to support expansion of small and medium scale mining enterprises and vocational training are under preparation. 27. Bank lending for physical infrastructure has been focused on regional development and strengthening of institutions and sector policies. Two highway sector projects (FY79 and FY84), the fourth railway project (FY81) and an industrial ports project (FY84) support these goals. The first and second medium-size cities water supply and sewerage projects (FY76 and 81) reinforce the planning, management and finance of specialized water supply and sewerage institutions at the federal and municipal levels, and contribute to the establishment of tariffs more closely related to costs; a third project was approved by the Executive Directors on May 17, 1983. A fifth railway project is under preparation. 28. The Government has adopted a National Urban Development Plan that spells out its regional development priorities in operational terms. A project to assist in the development of the Lazaro Cardenas urban area was approved by the Executive Directors in FY78, and a second urban project for oil-producing southeastern Mexico was approved by the Executive Directors in FY81. A loan for the preparation of a deconcentration program for the Mexico City Region was approved by the Executive Directors in August 1982. A low income housing project is under preparation. - 10 - 29. The Economic Development Institute (EDI) is assisting CECADE (Centro de Capacitacion de Desarrollo Economico under the Secretariat of Programming and Budgeting) in training Government staff in project preparation, monitoring and evaluation. EDI assistance is directed at courses on urban and regional development, agriculture, rural development and agro-industries. The Bank has also assisted the Mexican authorities in training personnel for managing water supply and industrial credit projects. 30. The Inter-American Development Bank (IDB) is the second largest source of multilateral aid to Mexico. The IDB has made loans to Mexico totalling US$3.billion as of December 31, 1984. Over 50% of the total has gone to agricultural and rural development projects, and the balance to transportation, industry, water supply and sewerage, tourism infrastructure, education, municipal development, and pre-investment. The IDB and the Bank have coordinated their assistance on several projects. Each has made loans for the national integrated rural development program (PIDER), agricultural and livestock credit, small- and medium-scale industries development, and hotel development projects. The International Fund for Agricultural Development (IFAD) has approved a loan of US$22 million for a rural development project in the state of Oaxaca which was appraised by the Bank's staff and for which the Bank is acting as c)operating institution for administering the loan. 31. Bank-supported power, steel, fertilizer and tourism projects in Mexico have been co-financed by several bilateral export credit agencies and commercial banks. In January 1982, Mexico borrowed US$500 million from commercial banks to provide complementary financing for Bank-assisted projects where project specific co-financing would have been difficult. PART III: THE CRIAPAS DEVELOPMENT PLAN The Setting: Chiapas and the Southeastern Region of Mexico 32. The Southeast, which includes the States of Tabasco, Veracruz, Campeche, Quintana Roo, Oaxaca and Chiapas, is the least developed region of Mexico. Until the recent discovery and production of oil in Tabasco, Veracruz and Chiapas, this region grew at a lower rate than the rest of the country. Despite many natural resources, the Southeast suffers from socio- economic constraints which have hampered development efforts (serious infra- structure bottlenecks, shortage of skilled manpower and underdeveloped human resources). The region also has the highest concentration of indigenous population. Within the Southeast, Chiapas is perceived as a region of great economic potential, especially in agriculture, tourism and agroindustries. As a result, it has recently received priority attention from the Government. 33. Chiapas is the most rural 3tate in Mexico with a population of 2.3 million, of which about 25% is indigenous. It is one of the poorest and least developed States in the country, with a per capita annual income of - 11 - about US$350, compared with the national average of US$2,250. However, it is well endowed with natural resources which have not yet been fully exploited or explored. About one third of the population is estimated to live in urban areas which is about half the average national ratio. Agriculture represents about 36% of the State's GNP, accounting for 80% of all employment. Ser- vices, commerce, construction and transport account for 31% of GNP and industry, mining (petroleum) and hydro-electricity for the remaining 33%. 34. A poor intrastate communications system has kept factor mobility low, and thus contributed to sharp income and social disparities between subregions (the Coast, the Central Depression, the Central Highlands and the Tropical Forest). There is a danger that plans for the accelerated develop- ment of Chiapas, if not properly conceived and managed, could exacerbate these disparities because the most promising investment opportunities lie in the relatively flat Coastal areas and Central Depression (irrigation and drainage) where incomes are already higher and population densities lower than average. The least developed and relatively densely populated parts of the State are the less fertile and more fragile sloping areas in the Central Highlands (the Altos) where communications are difficult. The Government aims at pursuing a more balanced growth pattern, with priority focus on tree crops, rainfed agriculture and transport in the Central Highlands. A major effort is being made to identify and prepare projects that will yield substantial and sustainable income increases in those areas. Its initial stages are being supported through the studies component of the proposed Chiapas Agricultural Development Project. Regional Development Strategy 35. The Government requested Bank assistance in the formulation of a strategy for the development of Chiapas in September 1980. The following year, a multisectoral Bank mission visited the State and its report contrib- uted to the formulation of the Government's first initiative in regional development policy and the Chiapas Development Plan, launched by the Presi- dent of Mexico in May 1983. In 1984, a similar plan was formulated for the neighboring State of Oaxaca. Other State development plans are under preparation. 36. The new regional orientation in Mexico's approach to development planning also required institutional changes to ensure the proper coordina- tion of Federal and State Government activities. As of 1981, Development Planning Committees (COPLADES) were established in each State to plan, monitor and evaluate the activities of regional branches of central Federal Government, with the State Governor as chairman and the Regional Delegate of the Secretariat of Programming and Budgeting (SPP) as technical secretary. The central Government agencies are also represented on such Committees. These Committees formulate and propose annually to the Federal and State Governments the investment, expenditure and financing programs for the State, and oversee the execution of regional development plans. Furthermore, to formalize the coordination of development planning and project implementation at the State level, Coordinating Agreements are entered into between the Federal Government and each State (Convenios Unicos de Desarrollo, CUDs). Such an agreement between the Federal Government and the State of Chiapas was - 12 - signed in February 1984. Within this framework, specific coordinating agreements would be entered into for the implementation of the proposed parallel Agricultural and Rural Roads Projects (Section 3.02(a)(ii) of the draft Guarantee Agreement). 37. Chiapas contains a number of unique ecological reserves which are important in terms of wildlife and plants, as well as for watershed manage- ment, soil conservation, water quality, fisheries and tourism potential. With Bank assistance, the Government has established an environmental review process applicable to all construction works, with the Secretariat for Urban Development and Ecology (SEDUE) acting as the responsible agency, to manage the impact of the proposed investments under the Chiapas Development Plan on the delicate ecological balance and on the indigenous population in the State. Program Objectives 38. To address the current uneven pattern of the State's development, and to help integrate the economically marginal regions into the development process, the Chiapas Development Plan aims at promoting greater social and economic equality between the various subregions and productivity improvement generally. These objectives would be achieved through a package of carefully balanced and integrated plans for the development of physical and social infrastructure and directly productive activities, mainly in agriculture, supported by improvements and expansion in rural communications system. The first stage of the Plan was initiated in 1983 and is expected to be implemented over the remainder of this decade. Bank participation in the financing of this first stage includes the proposed priority Agricultural and Rural Roads Projects, as well as measures to help monitor the program's impact on the natural environment. The Government will finance basic infra- structure components and special assistance subprograms for the indigenous population mainly concentrated in the Altos subregion. Under the proposed Agricultural Development Project, the Bank would support this objective by helping finance soil conservation structures and related technical assist- ance, which are critical for the sustained development of this subregion. The second stage of the Chiapas Development Plan would focus in particular on the promotion of agroindustries, fisheries, forestry and energy development. Future Bank participation would be dependent upon the identification of suitable investment opportunities through the studies component included under the proposed project. 39. Execution of the investments supported by the Bank would be the responsibility of Federal sector agencies involved, the Secretariats of Agriculture and Water Resources (SARH) and Communications and Transport (SCT). This would include physical planning, construction and supervision. Implementation of appropriate environmental protection measures would be the responsibility of the Secretariat of Urban Development and Ecology (SEDUE). At the Federal level, a special multisectoral Directing Council for implemen- tation of the Chiapas Plan, composed of representatives of all the agencies involved, would provide overall guidance. At the State level, COPLADE would coordinate and monitor all project activities (para. 36). Counterpart funding for the proposed agricultural and rural roads projects would come - 13 - from the budgets of SARH and SCT and the Regional Development Program (PDR). Agricultural credit would be financed outside the Chiapas Plan budget through existing credit programs in the State which are adequate to meet financing requirements under the Plan. Program risks 40. The Chiapas Plan is the first integrated regional development operation in Mexico within a new and largely untested institutional framework. Inevitably the new institutions are of uneven quality. The Federal and local executing agencies within the CUD/COPLADE system (para. 36) would receive substantial inputs through the various projects to improve their institutional and budgetary capabilities. Despite those mitigating measures, the execution of this complex multi-sectoral program entails a certain risk. However, the risk is considered inevitable and acceptable if the Bank is to support Mexico's renewed regional development efforts in a substantive and timely manner. PART IV - TRANSPORT SECTOR IN CHIAPAS 3/ A. Background 41. The transport system has been one of the most limiting factors of the growth and integration of the specific subregions as well as of Chiapas as a whole, influenced by the State's particularly difficult topography and its relative distance from the more developed and populated coastal plateau of Mexico. As a result, the sector not only lags in its role as catalyst for development, but also in servicing local demand. 42. The transport network of Chiapas consists mainly of about 8,600 km of roads, including 2,840 km of paved roads, one Pacific Coast port, 540 km of railway lines, and two major airports. The construction of the network is relatively recent, with major highway connections having been completed in the last five years. Most of the rural roads network of 4,000 km was constructed over the last ten years. The network is still sparse, as evidenced by the fact that an estimated 500,000 people are without all- weather access. 43. Road transport is the principal transport mode for Chiapas. The three main axes are the Pan-American Highway, running from the Oaxaca state border to the Guatemalan border; the Pacific Coastal Highway, from Oaxaca to Ciudad Hidalgo at the Guatemalan border; and the North Highway, running north-south from the Tabasco state border to Ixtapa and Escopetazo on the Pan-American Highway east of Tuxtla Gutierrez. While, until recently, most 3/ A discussion of the transport sector and related issues has been presented in recent FY84 President's Reports for Loans 2428-ME (Second Highway Project) and 2450-ME (Industrial Port Project) approved in May/June 1984 and no substantial changes have occurred. This report thus focuses on the transport sector in Chiapas. - 14 - of the rest of Mexico lacked only rural roads, Chiapas still faced the problem of a limited trunk network. Rural roads funds were directed at finishing the State's trunk network, resulting in many low-standard roads with significant traffic volumes. B. Investment priorities 44. Transport investment needs in the State are concentrated in the road subsector and include: (1) completing the trunk network, to provide a direct connection between the main production areas of the Central Depression and the Pacific Coastal highway; (ii) the upgrading of low-standard roads with high traffic, especially in the Central Depression, with modernization of existing federal trunk roads, and improved rehabilitation and maintenance of existing rural roads; and (iii) the extension of the rural roads network to potentially productive areas and outlying communities. These needs, with regard to the federal and state trunk network, are adequately treated in SCT's indicative 1984-1988 investment program, taking into account the over- all national budgetary restrictions. To help to determine future investment priorities for all modes, the Government agreed, at negotiations, to carry out a review of the transport investment priorities in the State and complete a road master plan for Chiapas by December 31, 1986 (Section 3.06 of the draft Guarantee Agreement). C. The Rural Roads Sector General 45. Prior to 1970, Mexico's road-building program was directed at developing the Federal and State trunk network, while rural access was largely ignored and only 12% of the total roads network (8,500 km of a total of 71,500 km) were rural access roads. As a result, some 90,000 commu- nities,4/ representing 91% of the communities in Mexico, lacked all weather access to the trunk network and the national economy. In 1970, rural development was given greater priority, and new strategies were accordingly devised with the objectives of better integrating the many small subsistence farmers into the economy, stimulating economic growth in rural areas and providing short-term employment. A key element in the rural development strategy was the improvement of rural access, especially to areas with population concentrations of over 350 people. Since 1970, the construction of rural roads has been executed and financed by a variety of agencies. The principal executing agency was the former Secretariat of Human Settlements and Public Works (SAHOP), but SCT now carries out the program. In addition, SARH has constructed thousands of kilometers of roads, mainly farm service roads, as part of its investment programs. 4/ 82,000 communities with up to 500 inhabitants and 8,000 with over 500 inhabitants. - 15 - Rural Roads in Chiapas 46. Under the various construction programs, about 1,800 km of rural roads were built in Chiapas between 1977 and 1983, excluding SARH roads. The average annual rate of construction was about 250 km per year. The selection of road projects has been largely ad hoc, and presently there is no consis- tent methodology for selecting roads and establishing priorities. 47. In Chiapas, the division of technical and financial respon- sibilities for selecting, designing, executing and maintaining the various roads is complex and has developed as a result of the different road invest- ment programs which were started by federal, state and quasi-public enti- ties. This has led to the differing construction and maintenance policies and capabilities of the various principal road-building agencies at the federal, state and local levels which build roads relating to their major investment projects. The Federal Government has taken action to consolidate the various rural roads programs, so that SCT will have primary responsi- bility for construction and COPLADE for identification. Following the recent reorganization of transport sector responsibilities under SCT (1983), a more favorable trend is developing since the investments focus more on upgrading and rehabilitation, and the network is being consolidated under SCT, includ- ing the rural roads program. 48. The state office of SCT has had long experience in the planning, design and construction of rural roads of the type and extent included in this project, in administering associated construction contracts and in carrying out such works through force account methods. However, while rural roads constructed by SCT are designed to appropriate standards, there is a lack of consistency between SCT and SARH rural road design standards. The project aims at promoting consistency in design, construction and mainte- nance standards. In order to promote this objective, the Government confirmed, at negotiations, that, by December 31, 1987, it will carry out a review of the construction and maintenance practices regarding rural roads in the State under the jurisdiction of SCT and SARH, with a view to further rationalizing rural roads designs, specifications, construction methods and maintenance practices, and assignment of maintenance responsibilities between agencies to ensure effective maintenance (Section 3.08 of the draft Guarantee Agreement). 49. With respect to maintenance practices, and due to the fact that, since 1971, the Government's attention has been directed toward the construc- tion of rural roads under different road investment programs, rural road maintenance is lacking in Chiapas as well as nationwide. To address this problem under the proposed project, the Government will review construction and maintenance practices in Chiapas and develop a plan to allocate maintenance responsibilities (para. 48). With over 80,000 km built in a decade, the requirements for maintenance, particularly periodic maintenance, spot improvements and rehabilitation have accumulated rapidly. The basic deficiency is inadequate budgets. It is estimated that, in Chiapas, the - 16 - average annual cost of appropriate routine and periodic maintenance is about US$875 equivalent per kilometer, of which 50% represents periodic and emergency maintenance. Taking into account deferred needs, it is expected that average budgetary levels per km should be even higher. The Government has recognized the problem and, for 1984, budgeted Mex$ 285 million (US$400 per km equivalent) for SCT in Chiapas. On a national level, SCT has projected substantial real increases in its 1985-1988 investment program for rural road maintenance and rehabilitation, reaching about US$750 equivalent per km by 1988. During that period, the Government is also expected to permit more flexibility in the use of the rural roads construction budget in order to meet deferred rehabilitation requirements. At negotiations, the Government confirmed that it will provide adequate resources to meet rural road maintenance requirements in Chiapas, including annual routine maintenance of all rural roads within the SCT network. In addition, sufficient funds will be provided to carry out, under the SCT Rural Road Rehabilitation and Periodic Maintenance Program, an average of 350 km per year in 1985 through 1987, gradually increasing to 500 km per year by 1988 (Section 3.04(ii) of the draft Guarantee Agreement). This provision would represent an annual budget of US$700 per km equivalent by 1988. As maintenance budgets are increased, it will also be necessary to improve rural road inventory and project identification procedures. In Chiapas, the initial coverage for the road inventory has been completed and the Government agreed at negotiations that it will update and furnish to the Bank by November 30, 1985, the inventory of rural roads in the State, and thereafter update the inventory on an annual basis (Section 3.04(i) of the draft Guarantee Agreement). D. Rural Transport Services 50. Transport services in Chiapas are provided largely by the private sector. The motorization rate is one of the lowest in Mexico. Institution- ally, the transport services sector appears strong and adequately organized. Regulatory solutions to problems on the State and Federal highway network are sought through a participatory planning process in which the various interest groups involved are represented. However, little is known about the trans- port services provided on unimproved or recently improved rural roads, and how these services may affect the way in which the benefits of road improve- ments are passed on to rural residents. To fill this gap, it was agreed at negotiations that the Government would carry out a study of rural transport services to be completed by December 31, 1986 (Section 3.07 of the draft Guarantee Agreement). E. Past Bank Participation and Experience in the Transport Sector 51. The Bank has had an extensive involvement in the Mexican transport sector: (i) nine highway loans have been made, focusing upon the trunk network, the first in 1960 and the ninth (a Second Highway Sector Project - Loan 2428-ME) in 1984; (ii) four railway loans, with the Fourth Railway Project (Loan 1929-ME) in execution; (iii) two port loans, including a port preparation loan in 1981 (Loan 1964-ME) and the Lazaro Cardenas Industrial - 17 - Ports Project (Loan 2450-ME) in 1984; (iv) an airport project (Loan 1022-ME), approved in 1974 and completed in 1982. In June 1982, the Bank issued a completion report for the Seventh Highway Project, which concluded that, although the quality of works executed is satisfactory, cost increases, construction delays and insufficient budget allocations resulting from the recent economic crisis in Mexico have generally resulted in delayed completion of Bank projects. 52. Rural roads construction has received Bank financing under agricul- tural projects, but not under transport projects. Most of such roads were built by SARH and were farm service roads, not community access roads which were more typical of the main rural roads program. Bank agricultural projects have supported the PIDER program, which included community access roads. The reviews of the PIDER projects identified transport issues that could best be handled under specific transport lending, particularly with regard to road selection criteria and maintenance budgets and practices. Thus, it was considered appropriate to prepare a rural roads project in parallel with an agricultural development project, to continue the integrated development framework of earlier projects, while allowing for a more focused treatment of important transport issues. F. Bank Lending Strategy 53. The Bank's role in the transport sector has been expanded because of the measures taken by the Government on issues which have been of concern to the Bank during its long standing involvement in the sector, particularly with regard to sector pricing and institutional reorganization. Further- more, a constructive dialogue on sector policies has been initiated between the Bank and the Government which would be supported through the Bank's lend- ing and sector work program. The sector lending strategy, in accordance with the Bank's overall objectives for lending to Mexico, is to develop relatively quick disbursing loan operations which focus upon short-term investment in maintenance, rehabilitation and modernization, and upon making prior invest- ments operational while assisting the Government, through the new Planning Directorate in SCT, in reassessing the medium- and long-term need for major new investments. 54. The proposed Rural Roads Project has a more limited focus and represents, together with the proposed Agriculture Project for Chiapas, a pilot effort to support comprehensive regional development. As with other lending operations to the sector, this project attempts to achieve a better balance between new investment and maintenance and rehabilitation. It is expected that the lessons of this project will serve as the basis for other regional development plans being prepared, as well as for the national rural roads program in general. - 18 - PART V - THE PROJECT Project Origin 55. The proposed project is part of the long-term development strategy for the State of Chiapas (para. 38), first formulated with Bank assistance in 1981 and subsequently embodied in the Government's Chiapas Development Plan (1983). Two priority elements were selected by the Bank as crucial to the initial stages of the Program and which provided an appropriate instrument for Bank financing: agricultural development and rural roads. Therefore, two projects, the Chiapas Agricultural Development Project and the Chiapas Rural Roads Project, have been prepared in parallel. This project was appraised in March 1984 and negotiated from February 25 through March 20, 1985 jointly with the Agricultural Development Project (Report No. P-4023-ME dated March 29, 1985. The Mexican Delegation was led by Mr. Luis Nava (NAFINSA) and included representatives from the Secretariats of Finance, Programming and Budgeting, Agriculture and Transport. A Staff Appraisal Report, entitled "Chiapas Rural Roads Project" (Report No. 5494-ME, dated March 25, 1985) is being distributed to the Executive Directors separately. Supplementary project data are included in Annex III. Project Objectives and Composition: 56. The proposed Rural Roads Project would support the development of Chiapas through the implementation of a program for rural roads construction, rehabilitation, improvement and maintenance, coordinated with other simultaneous social and economic development efforts under the Chiapas Plan. The project would provide for: (a) the construction of about 1,000 km of rural roads; (b) the rehabilitation and improveaent of approximately 2,000 km of existing rural roads; and (c) related consulting services and technical assistance. The selected roads would provide the necessary integration of the State, reduce transport bottlenecks and costs between complementary regions of the low lands coast, the central plateau and valleys of the Selva, while providing access to heretofore inaccessible areas of the State with good development potential. Where appropriate, the project would promote the use of labor-based construction techniques to offer increased employment opportunities for unemployed and underemployed local residents. 57. To ensure the full realization of expected benefits, the Rural Roads Project is designed to support Government efforts to: (a) strengthen State planning and decision-making capabilities in Chiapas to a level commensurate with its increased responsibilities under the Chiapas Develop- ment Plan; (b) improve administration and implementation capabilities for the planning, programing, construction, rehabilitation, improvement and mainte- nance programs for rural roads in Chiapas; (c) assess rural transport services for freight and passengers in Chiapas; and (d) extend lessons learned in Chiapas to other states. - 19 - (i) Rural Roads Construction Component 58. The proposed project provides for the construction of 1,000 km of rural roads over the project period, with an average construction program of about 200-250 km per year. This is based on the historical average of about 250 km per year for Chiapas, and an appropriate overall mix of road invest- ments in Chiapas by SCT and other agencies. Within this program, priority subprojects were selected, based upon population density, construction costs and transport needs. An initial 269 km were confirmed for inclusion under the project through economic or social evaluations to serve population centers of 100 to 6,100 people. Subprojects for subsequent years would be selected on the basis of agreed upon procedures (paras. 69 and 73). Detailed engineering designs for the first 120 km of works comprising the first year's construction program, and included for financing under this project, were reviewed in detail and were found to be satisfactory. Such designs would be completed prior to Board presentation. A number of identified subprojects (52 k) have been postponed, pending an environmental review by SEDUE, because they are located in ecologically sensitive areas (para. 75). (ii) Rural Roads Rehabilitation and Improvement Component 59. This component focuses on road segments which require priority rehabilitation, improvement and/or periodic maintenance works. A field review showed that the initial works identified (totalling about 300 kms) would vary in cost from US$3,000 to US$4,900 equivalent per km. At negotiations, the Government confirmed that the rural road inventory has been completed. The first year's construction program for rehabilitation and improvement works will comprise about 250 km. The annual workload should then increase gradually to about 500 km per year by 1988 with a total of 2000 km during the project period (para. 49). (iii) Consulting Services and Technical Assistance Component 60. The project includes consulting services for detailed engineering for rural road construction and technical assistance to SCT, including domestic and foreign consulting services, to support preparation of: (a) review of transport investment priorities in the State, including preparation of a road master plan for Chiapas; (b) study tours within Mexico and abroad and provision of seminars at SCT headquarters in Mexico City on rural road planning, construction and maintenance; (c) carrying out of appropriate pilot projects in Chiapas using non-standard technology and equipment in order to improve rural road construction and maintenance techniques; and (d) preparation of revised manuals of rural road construction and maintenance practices, as well as new manuals and guidelines, where justified. This program of work would be the responsibility of SCT, in coordination with COPLADE, mainly utilizing their own staff. However, since there is insufficient expertise and capabilities to carry out all the studies planned, the project provides for domestic and/or foreign consulting services, which would be financed through the proposed loan. The terms of reference of studies included under the project were agreed to during negotiations. - 20 - Project Cost and Financing 61. The total cost of the project is estimated at US$41.7 million equivalent, including price contingencies of about US$8.3 million equivalent and foreign exchange costs of about US$10.5 million. Price contingencies are calculated at 5% for 1985, 7.5% for 1986, 8% for 1987-90 and 5% thereafter, based on Bank guidelines. Physical contingencies are not estimated separately because the costs are calculated on an average per kilometer basis. The proposed Bank loan of US$22.0 million would be made to NAFINSA, with SCT as the executing agency. The Borrower would, through contractual arrangements on the same terms and conditions as those of the Bank loan, transfer loan funds to the Government for the carrying out of the Project (Section 3.01 of the draft Loan Agreement). SCT would act in coordination with COPLADE to carry out some technical components (para. 60). The remaining funds required are expected to come from annual federal budgetary allocations for SCT. The project would require about five years to execute, with a completion date of June 30, 1990. At negotiations, the Federal Govertment confirmed that sufficient counterpart funds as well as other resources required for the purposes of the project in 1985 and thereafter would be provided in a timely manner. Procurement 62. All civil works included in the project would be executed by SCT. All procurement would be carried out in accordance with Bank policy, and following procedures satisfactory to the Bank. In the case of rural roads included in the project, the works are of two general types, construction and rehabilitation. Civil works for road construction would be grouped into contract packages ranging in size from US$75,000 to US$700,000 equivalent in order to realize economies of scale while, at the same time, providing a range of small to large sized contracts that could be executed by local contracting firms. Contractors would be prequalified using SCT's standard procedures which are acceptable to the Bank. The packages of construction works that would be carried out by contractors are relatively small in value, would employ light or minor quantities of equipment and are scattered geographically throughout the state. Foreign contractors, therefore, are unlikely to be interested in this type of work. Special efforts would probably be necessary to interest domestic contractors from States some distance from Chiapas. The rehabilitation works would be carried out, with rare exceptions, by SCT through force account. In some cases, small local contractors would be used to execute minor works, to provide equipment or to act as labor contractors. For these reasons, civil works that would be contracted would be tendered using LCB. In carrying out the project's technical assistance components, SCT would employ consultants to the exLent needed in accordance with Bank guidelines (Section 3.09 and Schedule 2 of the draft Guarantee Agreement). With respect to the acquisition of the necessary rights-of-way and rights-of-access for the first year construction program, during negotiations the Government confirmed that all necessary action has been taken for this purpose. - 21 - 63. Local procurement procedures used in Mexico were reviewed in detail and were found to be generally satisfactory. During negotiations, agreement was reached with the Government that certain procedures now followed would be modified in order to agree more closely with the Bank's procurement guide- lines and policies. In particular, additional time for prequalification of contractors and for bid advertisement and preparation will be allowed to increase bidding opportunities and permit more careful bid preparation. Disbursements and Special Account 64. Bank funds are expected to be disbursed over a six-year period. Based on this schedule, the closing date for the loan would be June 30, 1991 (Section 2.03 of the draft Loan Agreement). Expenditures for civil works included in the approved program and carried out under the project as well as for the technical assistance components may be reimbursed from the Special Account (para. 65) on the basis of Statements of Expenditures. Disbursements would be on the basis of 50% of total net costs for civil works (rural road construction, rehabilitation and improvement) and 100% of total expenditures (excluding taxes) for both foreign and local currency expenditures for consulting services for detailed engineering and for technical assistance (Schedule 1 of the draft Loan Agreement). 65. To facilitate loan disbursements, NAFINSA, the Borrower, would set up a Special Account which would be operated in accordance with terms and conditions satisfactory to the Bank (Section 2.02(b) and Schedule 3 of the draft Loan Agreement). Satisfactory auditing arrangements for the Special Account were agreed during negotiations (Section 4.01 of the draft Loan Agreement and Section 4.01 of the draft Guarantee Agreement). Retroactive Financing 66. SCT is proceeding with the preparation and execution of the first year's construction program. Between July 1, 1984 and the anticipated date of loan signature, approximately 80 km of new construction and 150 km of rural road rehabilitation and improvement works are expected to be completed. On this basis, the loan would include retroactive financing of up to USS2.2 million for expenditures in the approved program that are incurred after July 1, 1984 but before the expected date of loan signature (Schedule 1, para. 2(a) to the draft Loan Agreement). Auditing 67. Appropriate auditing arrangements were agreed during negotiations for project accounts maintained by SCT to reflect the operations, resources and expenditures of the project (Section 4.01 of the draft Loan Agreement and 4.01 of the draft Guarantee Agreement). - 22 - Project Administration and Execution 68. The proposed project would be implemented within the overall organ- izational framework established by the Government for the cc:rdination of the Chiapas Development Program (paras. 36 and 39). SCT will be responsible for the execution of the project, except for some technical components which it would execute in cooperation with COPLADE (Section 3.01 of the draft Cuarantee Agreement). During negotiations, the detailed implementation schedule, drawn on the baqis of Chiapas' overall construction program, was reviewed and agreed upon. Subproject Evaluation Procedures 69. In order to meet the need for a consistent methodology for road selection and definition of priorities, COPLADE staff capabilities would be strengthened through this project with the support of SCT, for the application of adequate subproject evaluation procedures. It was agreed during negotiations that, on an annual basis during the project, SCT would prepare preliminary cost estimates for candidate subprojects and, then, SCT and COPLADE, with the assistance of SARH, would carry out the economic and social evaluation in accordance with agreed procedures. Road subprojects with a minimum estimated economic rate of return of 12% would be considered eligible, and summary data sheets would be submitted to the Bank for review and comments. Social criteria (para. 73) were also agreed upon at negotiations in order to include a limited number of roads which serve significant population groups in less productive areas (Section 3.03 of the draft Guarantee Agreement). SCT would then prepare final engineering in accordance with agreed upon design standards. 70. For rural road rehabilitation subprojects, it was agreed at negotiations that, beginning November 30, 1985 and annually thereafter, SCT would carry out a rural road inventory in the State in accordance with agreed upon procedures and would select priority rehabilitation and improvement works from that survey (Section 3.04 of the draft Guarantee Agreement). A summary program would be presented to the Bank annually for review and comment and, after approval, financing would be provided for a portion of that program's budget. Benefits and Justification 71. The problem of poor access to a large proportion of the State's rural population has been well documented, as have been the benefits generated by previous rural road construction works in Chiapas. Because of its comprehensive geographic coverage, the types of benefits to be generated by the proposed project would vary in accordance with the specific needs of the communities to be served. For most of the subprojects, the benefits from lower transport costs, more reliability, and better access to services, tech- nical assistance and farm inputs would be realized in the form of improved use of existing cultivated lands, through reduced losses and higher yields, as measured by the incremental net value of additional production. Similar- ly, it is expected that, in many cases, the area of cultivated land would be expanded. In addition, other benefits, more difficult to quantify, should be - 23 - realized as outlying small communities, particularly indigenous communities with limited production potential, become better integrated with the main road network and receive better access to social services (e.g., education and health services) as well as to job opportunities in other areas with greater economic potential. 72. With a few exceptions, the road subprojects proposed for construc- tion in the first year lie outside the primary zone of influence of the Chiapas Agricultural Development Project. The road network for the areas affected by that project are either largely in place (needing rehabilitation in some instances) or would be provided as a byproduct of the drainage structures to be built. Therefore, the zones of influence under the Rural Roads Project represent the next geographic areas for development, where access must be provided before agricultural development benefits can be realized. A staged screening methodology has been applied for the selection of the subprojects included in the first year program. The main economic benefit is increased agricultural production which has been estimated based on farm models relating to the associated Agricultural Development Project. The proposed new construction subprojects for the first year's program have estimated rates of return generally in excess of 20%. Agreed upon procedures will be applied in the following years of the project to select subsequent eligible works. 73. Although the principal criterion for accepting a road for financing under the project is the effect upon production increases, it has been apparent, through the preparation of the project, that there are areas of Chiapas with high population concentration but with limited agricultural or other natural resource potential. Particularly, in certain areas of the State, such as Los Altos, roads are planned as part of an effort to integrate remote and/or indigenous communities with the rest of the state and the country. Many of the benefits of these roads are difficult to calculate, such as access to health and educational services and to employment oppor- tunities outside the immediate zone of influence. The beneficial impact of such roads has been documented in prior research conducted in Chiapas. For inclusion in the Bank-financed program, it was agreed during negotiations that the total of such subprojects would not exceed 15% of the construction program, and that each road would not exceed a construction coct of USS450 per person served (Section 3.03 of the draft Guarantee Agreement). This indicator is based on assumptions regarding potential increases in community earnings through outside employment, some increases in the value of local production, and the potential magnitude of other social benefits compared with the average cost of rural road construction. For an average 8 km road, the minimum population required would be 440 people with higher populations required for higher cost or longer road sections. For the initial year's program, two subprojects totaling 19 km are included based on a social justification. 74. The intended beneficiaries of this project are mostly small farmers and "ejidatarios"5/in the State of Chiapas who either lack adequate road 5/ "Ejidatarios," members of an "ejido," a form of group land tenure based on usufruct. - 24 - access or whose road access has deteriorated. Typically, households in such areas of Chiapas, for which agriculture is the main source of income, earned about US$750 per household, or US$135 per capita in 1980. A significant proportion of the beneficiaries are expected to be from the large, ethnically distinct indigenous population. With regard to the initial 31 subprojects (269 kn), the total affected population would be about 40,000 people. Environmental Protection Measures 75. The impact of rural road improvements upon the physical environment is minimized by the design standards and construction methods to be applied under the proposed project, which are based upon the principle of providing access to existing rural communities at minimum cost, while avoiding disturbances to the natural terrain and excessive future road maintenance costs. In order to provide for application of adequate protective measures, it was agreed at negotiations that a subproject would not be considered eligible for financing under the project until SEDUE clearance has been issued (Section 3.03(a) (iii) of the draft Guarantee Agreement). Project Risks 76. The proposed project will be executed within the institutional framework set up for the implementation of the Chiapas Development Plan (para. 68). Despite the noted commitment of the Government, the execution of the program would entail a certain degree of risk with implications for the availability of adequate and timely counterpart funding. These risks would be, however, considerably lower than those which would exist if no attempts were made to control the ongoing uneven development of the State. Furthermore, the Government is committed to strengthen the institutional and budgetary capabilities of the various agencies involved (para. 40). 77. The economic evaluation assumes an incremental change in farm production patterns as a result of road improvements. While this increment has been estimated conservatively, there is a risk that the expected yield increases and/or increases in area cultivated would not occur if technical assistance, seeds and fertilizer, and credit fail to reach the majority of farmers. This risk would be minimized by the actions proposed under the extension component of the proposed parallel Chiapas Agricultural Development Project. This component is statewide in concept and is not limited to the agricultural subproject areas. COPLADE has the responsibility of ensuring that these investments are included in the budgets of the respective agencies and, through its monitoring and evaluation activities, determining that needed services are delivered in a timely fashion in the road-impact areas. 78. Additional benefits are derived from direct employment on the project. There might be a risk that the project would fail to construct the planned roads, or that the choice of technology might shift toward more equipment-based methods during implementation, thus lessening employment benefits. The first risk would be minimized by the extensive preparatory work done by SCT and COPLADE staff and the scope of the project, which takes - 25 - into consideration local capacity for execution and historic construction levels. The second risk would be minimized by the development of manuals for determining appropriate construction technology, i.e., equipment-based versus labor-based methods. 79. Finally, benefits would accrue to the rural population, and especially to the indigenous population which occupies unproductive land, through improved access to employment opportunities generated under the Chiapas State Development Plan. The risks here are that new employment opportunities may not arise, or that they may be taken by other people, particularly from neighboring Guatemala. To minimize the first risk, this project has been prepared in close coordination with the Bank-financed Chiapas Agricultural Development Project, which is expected to generate the equivalent of 15,000 full-time jobs and to enhance agricultural production throughout the State. PART VI - LEGAL INSTRUMENTS OF AUTHORITY 80. The draft Loan Agreement between the Bank and Nacional Financiera, S.A., the draft Guarantee Agreement between the United Mexican States and the Bank, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions of the project are listed in Section III of Annex III. 81. 1 am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - RECOMMENDATION 82. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments March 29, 1985 - 26 - ANNEX I TAB LS 3A Page 1 of 5 NXICO - SOCIAL INDICATORS DATA SHEXT MKICO mrmNE CROUPS (USIGNTID AVERAGUS) L HOST (HOST RECENT ESTIMATE) b RECENT HIDDLE INCOME MIDDLE ICOK 1960z A 197A ESTIMAT T. AMERICA & CAR EUROPE AREA (THODBAND Sq. MN) TOTAL 1972.5 1972.5 1972.5 AGRICULTURAL 983.2 976.4 979.5 C m E CAPITA (US$) 360.0 730.0 2270.0 2106.6 2345.3 EAST CONSMPTION MR CAPITA (KILOGRAmS OF OIL EQUIVALENT) 539.0 773.0 1340.0 995.5 1122.8 POPULATIOU AMD wITAL STATISTICS POPULATION.NID-TEAR (THOUSMIDS) 37073.0 51176.0 73122.0 MUAN POPULATION (I OF TOTAL) 50.8 59.0 68.0 66.5 46.6 POPULATION PROJECTIUMS POPUIATION IN YEAK 2000 (HILL) 109.4 STATIONARY POPULATION (MILL) -198.5 . POPULATION IOMENTUM 1.9 POPULATION DENSITY PER Sq. KM. 18.8 25.9 36.1 35.7 82.9 PER SQ. ot. AcRE. LAND 37.7 52.4 72.5 92.4 158.9 POPULATION AGE STRUCTURE (2) 0-14 TUS 45.6 46.5 44.3 39.9 31.6 15-64 TRS 51.0 50.0 52.2 56.0 61.1 65 AND ABOVE 3.4 3.5 3.4 4.1 7.1 POPULATION CROWTH RATE (Z) TOTAL 3.0 3.2 3.0 2.4 1.6 URBAN 4.8 4.7 4.2 3.6 3.7 CRUDE BIRTH RATE (PER THOUS) 45.4 43.4 33.9 31.3 23.4 CRUDE DEATH RATE (PER THOUS) 12.2 9.7 7.1 6.1 B.8 GROSS REPRODUCTION RATE 3.3 3.2 2.2 2.0 1.6 FAMILY PLANNING ACCEPTORS. ANNUAL (THOUS) .. 25.1 1145.0 Ic USERS (I OF MARRIED WMEN) .. .. 39.07; 40.3 F003 A MIURITION INDEX OF FOOD PROD. PER CAPITA (1969-71-100) 97.0 100.0 104.0 114.3 114.5 PER CAPITA SUPPLY OF CALORIES (2 OF REQUIREMENTS) 117.0 112.0 12L.0 110.6 128.6 PROTEINS (CAMS PER DAY) 69.0 66.0 74.0 67.3 89.7 OF IKICR ANIMAL AND PULSE 29.0 27.0 28.0 /d 34.1 34.5 CHILD (AGES 1-4) DEATH RATE 10.3 6.5 4.0 5.7 5.2 HEALTH LIFE EXPECT. AT BIRTH (YEARS) 57.0 6L.3 65.4 64.7 67.4- INFANT DRT. RATE (PER THOUS) 91.1 73.6 52.9 60.6 54.2 ACCESS TU SAFE WATER (ZPOP) TOTAL 23.5 49.0 Ie 58.0 le 65.4 URBAN .. 68.5 /e 51.4 / 78.1 RURAL .. 21.0 51.07 46.2 ACCESS TO EXCRETA DISPOSAL (Z OF POPULATIUN) TOTAL .. 37.0 le 38.0 le 52.9 URBAN .. 60.0- 50.1 IW 67.0 RURAL .. . 13.o 7 24.5 POPULATION PER PHYSICIAN 1830.0 1510.0 .. 1917.7 1065.6 POP. PER NURSING PERSON 3650.0 1390.0 .. 815.8 764.4 POP. PER HOSPITAL BED TUrAL 590.0 970.0 .. 367.2 326.3 URBAN 570.0 It 1170.0 .. 411.5 201.5 RURAL .. 1370.0 .. 2636.3 ADMISSIONS PER ROSPITAL BED .. .. .. 27.3 20.0 HOUSINc AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4 5.7 URBAN 5.7 5.7 RURAL 5.2 5.8 AVERAGE NO. OF PERSONS/ROOM TOTAL 2.9 2.5 URBAN 2.6 2.2 RURAL 3.4 3.2 . ACCESS TO ELECT. (2 OF MWELLINGS) TOTAL .. 58.9 URBAN .. 80.7 RURAL .. 27.8 - 27 - ANNEX I TABLE 3 Page 2 of 5 MEXICOO- SOCIAL INDICATORS DATA SHEET MEXICO REFERENCE GROUPS (WEIGHTED AVERAGES) L4 MOST (HOST RECENT ESTIMATE) /b RECENT MIDDLE INCOME MIDDLE INCOME 196 197L ESTINATFLI. LAT. AMERICA & CAR EUROPE anucanog ADJUSTED ENROLLMENT RATIOS PRIMARYs TOTAL 80.0 104.0 121.0 105.4 101.1 MALE 82.0 106.0 122.0 106.3 105.5 FEHALE 77.0 102.0 120.0 104.5 96.7 SECONDARYr TOTAL 11.0 22.0 51.0 43.2 59.1 HALE 14.0 26.0 54.0 42.3 6d.9 FEMALE 8.0 17.0 49.0 44.5 50.6 VOCATIONAL (2 OF SECONDARY) 23.6 26.7 11.6 33.6 2L.6 PUPIL-TEACHER RATIO PRIMARY 44.0 46.0 37.0 30.1 25.1 SECONDARY 13.0 14.0 18.0 16.8 20.5 ADULT LITERACY RATE (2) 65.4 74.2 82.7 79.5 75.6 CONSIMPrlM PASSENGER CARSITHOUSAND POP 12.9 24.1 61.3 46.0 54.7 RADIO RECEIVERS/THOUSAND POP 89.0 273.7 295.4 225.6 164.9 TV RECEIVERS/THOUSAND POP 17.5 58.5 108.1 107.2 123.8 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 73.3 .. 64.5 /a 63.5 96.3 CINEMA ANNUAL ATTENDANCE/CAPITA 9.8 4.9 4.4 /c 2.8 2.9 IAllR FORCE TOTAL LABOR FORCE (THOUS) 11191.0 14722.0 21398.0 FEMALE (PERCENT) 15.2 17.4 20.0 23.2 34.5 AGRICULTURE (PERCENT) 55.1 45.2 35.6 31.5 40.7 INDUSTRY (PERCENT) 19.5 22.9 25.8 23.9 23.3 PARTICIPATION RATE (PERCENT) TOTAL 30.2 28.6 29.3 32.2 42.9 KALE 51.1 47.4 46.7 49.3 54.7 FEMALE 9.2 10.1 11.7 15.2 31.0 ECONOMIC DEPENDENCY RATIO 1.6 1.7 1.6 1.4 0.9 INCOME DISERUTION PERCENT OF PRIVATE INCOE RECEIVED BY HIGHEST 5% OF HOUSEHOLDS .. HIGHEST 202 OF HOUSEHOLDS 61.1 lb 60.7 57.7 /I LOtEST 20% OF HOUSEHOLDS 3.47- 3.3 2.9 7d. LOWEST 402 OF HOUSEHOLDS 9.8 Wh 9.9 9.9 7d* POVERTY TARGBT GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. .. 288.2 RURAL .. .. .. 184.0 ESTIMATED REIATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 471.0 /c 522.8 RURAL .. .. 67L.0 372.4 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (2) URBAN .. RURAL .. NOT AVAILABLE NOT APPLICABLE NOTES Ia The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on aveilability of data and is not uniform. l Unless otherwise noted, "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and 1971; and data for "Most Recent Estimate" between 1980 and 1982. fc 1979: /d 1977; / Served from water supply and sewage If 1962; & 1976: A 1963. JUNE, 1984 - 28 - г ANNEX I игиlгlаw а ис[а. меатав PBge 3 Of S вМвег Угhи/1 вм вlив ви вnw fм веггwв /вввмllв lввW ги rг игмгппеw ввв и11ввЧ. « ввwгlв в1и м wвгУ емв вм/ ви wи м lweвиN1rl17 ввювгввМ мвви л1 [вг 1в+ N.[Wврlвв/ /ве1в1г1гвг ви виlnггв вrи в1 в1[гмвг иwвгtв 1w иlиввlМ ем вив. Tr вив ви, .вwимlввв. wвf+1 ев Миг11в лМn в1 rpur.. 1r1w. гив/в. вМ вUвивигlи ввпив .в1.. аиии.и. ви.ив ммги.. !м иfвивw вгrlв вn i11 е1в ввr аеиllр в1м М W вьвJиl виИгв вN О1 в вrмгв [мв rleh вввwцва м[мг мевр t.ьw euw ем мlпеf вем вг гв• м1м ввьмn г.•аие ги -мвег :+..и оп ..r•ea.n• вr..в м.и 111Чи 1.м rпв м.1и .м мми we• 1в им.. мwи wr .егыwг ..в1.-..ни.1 игlмеlиl. м 1м иг.г..и вгw м. гм .+в.ии .и г.wгигlw мвми ипв..еи .rr rw вввгг 1w11маи вМ вмw .etr +М rlиlев М ем еwЧгм и. /гМ W eNa fвГ см1 1У1иlи. Nw /м мигвр вf гвиlгlи вr11г 1м 1Мtвпвл вв/мУ М 1м вев11М111q вf Мгв мi 1в м1 иl/вгв. виеlw wc м мгиви ел мlвltи миМ вf вr 1М1и[и м ыимг. 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Statement of Bank Loans (as of February 28, 1985) Loan Amount less Undis- No. Year Borrower Purpose Cancellations bursed 58 loans fully disbursed 3,495.2 1553-5 1978 NAFINSA Agriculture 56.0 1.3 1643-5 1979 NAFINSA Small-scale Agri. 60.0 4.7 1706-5 1979 NAFINSA Irrigation 92.0 48.3 1712-5 1980 NAFINSA Industry 175.0 31.8 1820-5 1980 NAFINSA Small and Medium Scale Mining 40.0 19.9 1858-5 1980 NAFINSA Irrigation 160.0 147.9 188!-5 1981 NAFINSA Small and Medium Scale Industry 100.0 1.5 1908 1981 NAFINSA Irrigation 23.0 5.6 1913 1981 BANOBRAS Water Supply 125.0 77.7 1929 1981 BANOBRAS Railways 150.0 48.7 1945 1981 NAFINSA Rainfed Agriculture 264.6 110.4 1964 1981 BANPESCA Port Development. 10.0 6.6 1990 1981 BANOBRAS Urban Development 11 164.0 119.8 2042 1982 NAFINSA Technical Training 90.0 7.7 2043 1982 NAFINSA Integrated Rural Development 175.0 121.6 2100 1982 NAFINSA Irrigation. Rehab 11 65.0 61.7 2142 1982 NAFINSA Capital Goods Industry 152.3 117.4 2154 1982 NAFINSA Pollution Control 60.0 49.4 2191 1983 NAFINSA San Fernando Agri. 48.4 41.8 2194 1983 BANOBRAS Urban Enginering 9.2 6.4 2262 1983 NAFINSA Agri. Marketing 115.0 94.5 2281 1983 BANOBRAS Third Water Supply 100.3 90.3 2325 1983 NAFINSA Third Small Medium Industry 175.0 135.8 2331 1983 BANCOMEXT Export Development 350.0 296.5 2428 1984 BANOBR&S Highways 200.0 168.2 2450 2/ 1984 BANPESCA Ports 76.3 76.3 2454 1984 NAFINSA Agricultural Credit 300.0 139.9 TOTAL 6,831.3 Of which has been repaid to the Bank 1,342.5 Total now outstanding 5,488.8 Amount sold 92.3' of which has been repaid 92.3 0.0 Total now held by Bank 3/ 5,488.8 Total undisbursed 2,031.7 I! The status of the projects listed in Part A is described in a separate report on all Bank/IDA financed projects in execution, which is updated twice yearly and circulated to the Executive Directors on April 30, and October 31. 2/ This loan became effective on March 8, 1985. 'T/ Prior to exchange adjustments. - 32 - ANNEX II Page 2 of 2 B. Statement of IFC Investments (as of February 28, 1985) Fiscal US$ Million Year Obligor Type of Business Loan Equity Total 1958/59 Industrias Perfect Circle, S.A. /1 Industrial Equipment 0.8 - 0.8 1958 Bristol de Mexico, S.A. /1 A.C. Engine Overhaul 0.5 - 0.5 1961 Acero Solar, S.A. /1 Twist Drills 0.3 - 0.3 1962/65/ Compania Fundidora Fierro 66/68 y Acero de Monterrey, S.A. Steel 2.3 21.4 23.7 1963 Tubos de Acero de Mexico, S.A. /1 Steel 0.9 0.1 1.0 1963 Quimica del Rey, S.A. /1 Sodium Sulphate 0.7 - 0.7 1964/66 Industria del Hierro, S.A. /1 Consttuction Equipment - 2.0 2.0 1970 Minera del Norte, S.A. /1 Iron Ore Mining 1.5 - 1.5 1971 Celanese Mexicans, S.A./1 Textiles 12.0 - 12.0 1972 Promotora de Papel Periodico, S.A. de C.V. /1 Pulp and Paper /2 /2 /2 1973/79 Cemento Veracruz, S.A. Cement 15.9 - 15.9 1974/81 Cancun Aristos Hotel Tourism 1.0 0.3 1.3 1975/78 Mexinox, S.A. Steel 12.0 3.2 15.2 1978/81 /84 Papeles Ponderosa, S.A. Pulp and Paper 10.7 5.0 15.7 1978 Tereftalatos Mexicanos, S.A. Petrochemicals 19.0 - 19.0 1979/84 Cementos Tolteca, S.A. /3 Cement 168.0 7.9 175.9 1979/81 Hotel Camino Real txtapa,S.A. Tourism - 3.1 3.1 1979 Conductores Monterrey, S.A./3 Electrical Wire and Cable 18.0 - 18.0 1980 Industrias Resistol, S.A. /3 Particleboard 25.0 - 25.0 1980 Vidrio Plano de Mexico S.A. /3 Flat Glass 114.9 - 114.9 1980 Minera Real de Angeles, S.A. de C.V. /3 Mining 110.0 - 110.0 1981 Celulosicos Centauro, S.A./3 Pulp and Paper 59.5 - 59.5 1981 Corporacion Agroindustrial, S.A. /3 Agri-Business 11.3 3.0 14.3 1984 Metalsa, S.A. Motor Vehicles and Accessories 3.0 1.4 4.4 1984 Capital Goods Facility Industrial Equipment 100.0 - 100.0 1985 Proteison Cotton Seed Flour 2.0 0.8 2.8 1985 Primex /3 16.4 - 16.4 Total Gross Commitments 705.7 48.2 753.9 Less Cancellations, Terminations, Repayment, and Sales 540.4 22.1 562.5 Total Commitments Now Held by IFC 165.3 26.1 191.4 Total Undisbursed (including participants) 150.9 6.5 157.4 /1 Investments which have been fully cancelled, terminated, written off, sold, redeemed or repaid. /2 US$25,000. /S Gross commitment including amounts sold to participants. - 33 - ANNEX III Page 1 of 2 MEXICO CHIAPAS RURAL ROADS PROJECT Supplementary Project Data Sheet I. Timetable for Key Events (a) Time taken by the country to prepare project: About 22 months (b) Project Prepared by: SCT (c) First Bank mission to review project: July 1982 (d) Departure of appraisal mission: February 1984 (e) Negotiations Completed: March 1985 (f) Planned date of effectiveness: September 1985 II. Special Bank Implementation Action None III. Special Conditions During negotiations, agreement was reached with the Government on the following: (a) the Government would carry out a review of the transport investment priorities in the State, and a road master plan for Chiapas to be completed by December 31, 1986 (para. 44); (b) the Government would undertake a review of the construction and maintenance practices regarding rural roads in the State under the jurisdiction of SCT and SARH to be carried out by December 31, 1987 with a view to further rationalizing rural roads designs, specifications, construction methods and maintenance practices, and assigning of maintenance responsibilities between agencies (paras. 48-49); (c) the Government would provide adequate resources to meet rural road maintenance requirements (para. 49); (d) the Government would update annually the rural roads inventory (para. 49); (e) the Government would carry out a study of rural transport services to be completed by December 31, 1986 (para. 50); - 34 - ANNEX III Page 2 of 2 (f) the need for SEDUE clearance of subprojects prior to declaring eligibility for Bank financing (para. 75); (g) procedures to be followed for the annual technical and economic preparation and evaluation of the rural roads construction and rehabilitation program (para. 69); (h) local procurement procedures for civil works and consultant services (para. 63); and (i) implementation schedule for the project (para. 68). 泣、 IBRD 18421 CAMPECHE 90' TABASCO MEXICO CHIAPAS RURAL ROADS PROJECT 1--p. d. P- 5.*.e PROJECT: Rural Roads-tnitial Year's Program SCT Identification No for Rural Roads EXISTING: Paved Roads \0-- Gravel Roads Earth Roads Sea Port Railroads 17 Rivers A i rport s Mountainous Arecis Icjte Bounduties Internotional Boundaii, 16 GUATEMALA 90 UNITED STATES OF AMERICA -METERS, u 8 .. 0 too MILES 40 60 AAEXICO apa's EW ackav& AV eft CwA,.ww of it or Thr VAxW HA aW OW &WW7w&wW No ow 6wxWnbz= wt Vw w da nof AAe..c,, Cav w Ndwr"mh~ F carponlow. &fw pda l r --JBELIZE GUATEMACA 9 t I SEPTEMBER 1984