Announcement of Bank Lends 402 Million Dollars for Mexico’s Transport and Telecommunications Reforms on May 29, 1990

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. *Telephone: (202) 477-1234 BANK NEWS RELEASE NO. 90/89 Contact: Ciro Gamarra (202) 473-8721 BANK LENDS $402 MILLION FOR MEXICO'S TRANSPORT AND TELECOMMUNICATIONS REFORMS WASHINGTON, May 29, 1990 -- Mexico will use two World Bank loans totaling $402 million to carry out a comprehensive structural reform program in the road transport and telecommunications sectors. A $380 million loan will support programs to deregulate the trucking sector and to promote competition in the telecommunications sector through privatization and regulatory reforms. A related $22 million loan will help finance a technical assistance project in the communications sector. The reforms will improve the road transport and telecommunications sectors' efficiency -- benefiting all users, particularly firms which conduct trade-related business, for which communication services are important. Price and taxation distortions in the two sectors are being eliminated, and the public sector institutions responsible for the oversight of the sectors are being restructured. The transport and telecommunications project includes measures to improve highway safety and to ensure that trucks meet air-pollution standards. By providing an appropriate institutional and regulatory framework, the project is expected to spur private investment and competition, which will then serve to increase the efficiency of communication services and expand the coverage of telecommunications. Resource allocation will be improved through greater reliance on market forces for pricing and by realignment of the fiscal structures of the sectors. The World Bank loan, which will be used for eligible imports, will be disbursed, in two installments of $190 million each. The first installment will be available upon loan effectiveness. The second is scheduled to be released after November 15, 1990, upon fulfillment of specific conditions under the loan. Disbursement of the loan is expected to be completed by mid-1991. The $22 million loan will finance technical assistance for strengthening the Directorate General of Communications Policy and Standards (DGPNC) of the Secretariat of Communications and Transport (SCT), the agency responsible for the formulation of telecommunications policy and for sector regulation. - 2 - The $24.3 million technical assistance project, the Bank's first operation in this sector in Mexico, is linked to the telecommunications component of the transport and telecommunications sector adjustment loan. The two loans support the restructuring of the Mexican telecommunications service sector. The Government of Mexico plans to step up the pace of telecommunications development and has set as a goal an investment program of $10 billion over six years (1989-94). This would allow an increase in the telephone density from about 5.3 lines for every per 100 residents (end-1988) to 8.4 lines in 1994. To achieve this objective, the government is initiating a far-reaching program of reforms of the telecommunications sector involving privatization of Tel6fonos de M4xico (TELMEX), a monopoly utility. The technical assistance loan also supports modernization of SCT's management and monitoring functions. Technical assistance will support a regulatory capability to promote competition in the sector and to control potential monopoly abuses in pricing and the provision of service. Further, the loan supports the development of the newly created TELECOMM, which could play an important role in the development of competition in the sector. The project is expected to be completed by December 1993. The balance of project costs will be covered by the government ($2.24 million) and grant funds. Both World Bank loans were made to the National Bank for Works and Public Services (BANOBRAS). The loans are for 17 years, including five years of grace, with a variable interest rate, currently 7.75 percent, linked to the cost of the Bank's borrowings. They also carry an annual commitment charge of 0.25 percent on the undisbursed balances. NOTE: Money figures are expressed in U.S. dollar equivalents.