Mexico - Infrastructure Privatization Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6590-ME MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUAL TO US$30.0 MNILLION TO NACIONAL FINANCIERA, S.N.C. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR AN INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT AUGUST 2, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents (As of July 21, 1995) Currency Unit = Mexican New Peso (MexN$) US$ 1.0 = MexN$ 6.10 Abbreviations and Acronyms Used API Autoridad Portuaria Integral (Integrated Port Authority) ASA Aeropuertos y Servicios Auxiliares (Airports and Auxiliary Services) BANXICO Banco de Mexico BIS Bank for International Settlements CAPUFE Caminos y Puentes Federales (Federal Highways and Bridge Authority) CFE Comisi6n Federal de Electricidad (Federal Electricity Commission) CID Comisi6n Intersecretarial de Desincorporaci6n (Interministerial Commission on Privatization) CRE Comisi6n Reguladora de Energia (Energy Regulatory Commission) DGAC Direcci6n General de Aviaci6n Civil (General Directorate of Civil Aviation) FNM Ferrocarriles Nacionales de Mexico (Mexican National Railways) FTAL Financial Sector Technical Assistance Loan (ME-3838) ICAO International Civil Aviation Organization ICB International Competitive Bidding IDB Inter-American Development Bank IFC International Finance Corporation IMF International Monetary Fund IPP Independent Power Producer MIF Multilateral Investment Fund NAFIN Nacional Financiera S.N. C. NCB National Competitive Bidding PCS Personal Communications Services PEMEX Petr6leos Mexicanos SCT Secretarfa de Comunicaciones y Transportes (Secretariat of Communication and Transport) SECODA Secretarfa de la Contraloria y Desarrollo Administrativo (Secretariat of the Controller General and Administrative Development) SECOFI Secretaria de Comercio y Fomento Industrial (Secretariat of Commerce and Industrial Development) SHCP Secretarfa de Hacienda y Credito Piublico (Secretariat of Finance and Public Credit) TELMEX Telffonos de Mexico S.A. de C. V. TELECOMM Telecomunicaciones de Mexico  FOR OFFICIAL USE ONLY MEXICO INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: Nacional Financiera, S.N.C. (NAFIN) Guarantor: United Mexican States Implementing Agency: Ministry of Finance and Public Credit (SHCP) Beneficiary: Interministerial Commission on Privatization (CID) Poverty: Not Applicable. Amount: US$30.0 million equivalent. Terms: Fixed rate US dollar single currency loan for up to 15 years. Each semester's aggregate disbursements (disbursed amount) will have a grace period of three years and a final maturity of 12 years, both beginning from the rate fixing date for such disbursed amounts. Interest Payment Dates and Rate Fixing Dates: December 15 and June 15 Financial Benefits and Risks The Borrower has selected fixed rate US dollar single currency loan terms in order to improve its overall liability management and reduce its risks. It considers US dollars to be an appropriate currency for its debt management strategy, and a fixed interest rate basis appropriate to diversify its interest rate risk, given the large share of variable rate funding in its overall portfolio and its limited access to fixed rate funding from other sources. This document has a restricted distribution and may be used by recipients only in the performance of their oiTicial duties. Its contents may not otherwise be disclosed wiLhout World Bank authorization. I  Commitment Fee: 0.75% on undisbursed loan balances, beginning 60 days after signing, less any waiver. On-lending Terms: Not Applicable. Financing Plan: See Schedule A. Net Present Value: Not Applicable. Staff Appraisal Report: Not Applicable  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT FOR A PROPOSED LOAN TO NACIONAL FINANCIERA, S.N.C. WITH THE GUARANTEE OF THE UNITED MEXICAN STATES FOR AN INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed loan to Nacional Financiera, S.N. C. (NAFIN), with the guarantee of the United Mexican States, equal to US$30 million, to help finance an infrastructure privatization technical assistance project. The loan would be a fixed rate US dollar single currency loan for up to 15 years. 2. Background. Throughout the last decade privatization has been a key component of structural reform policies in Mexico, which seek to enhance the competitiveness of the economy. In the mid-1980s the Government complemented macro-economic stabilization policy with structural reforms, including privatization, to spur productivity growth. Sales of smaller state-enterprises dominated implementation of the policy in the period 1986 to 1988, after which followed a large scale privatization program of larger companies operating in competitive markets, mainly manufacturing firms and banks. In 1990 the Government began selling firms in sectors requiring economic regulation, most notably Telkfonos de Mexico S.A. de C V. (TELMEX), the national telephony operator. Though the overall economic outlook brightened, the difficulties of selling other infrastructure businesses without greater attention to the legal and regulatory aspects became apparent. Consequently, the expected program, comprising power plants, roads, airports and ports, slowed significantly in 1993. 3. The successful implementation of the country's structural reforms, along with reduced interest rates paid on investment alternatives abroad, induced a surge in net foreign capital inflows that averaged US$27 billion per year during 1991-93. Until the end of 1994, these inflows enabled Mexico to run a large current account deficit, which peaked at 8 percent of GDP in 1994. The capital inflows also caused the real value of the peso to appreciate. Strong political conflicts that arose in 1994, however, led to an abrupt slowing of these inflows, so that Mexico was forced to finance its current account deficit through a loss of foreign reserves. When the markets realized that the relative supply of pesos was growing too fast, panic selling further depleted the foreign exchange reserves of Mexico in late December 1994 and January 1995, and led to a major devaluation. Though the market appears to have stabilized, the peso depreciated by about 77 percent, from about 3.45 per in December 1994 to about 6.10 on July 21, 1995.  2 4. In March 1995 the Government announced an austerity program to reestablish trust in the economy and minimize the required macro-economic adjustment. The main targets of the program are to: (i) achieve a primary budgetary surplus of 4.4 percent of GDP for 1995; (ii) limit net domestic credit creation to a maximum of MexN$10 billion for 1995; (iii) achieve equilibrium in the current account; and (iv) restructure MexN$65 billion of outstanding debt of the private sector, representing 13 percent of the total commercial bank loan portfolio. The program is backed by unprecedented balance of payments support, announced to amount to some US$50 billion, from sources including the International Monatary Fund (IMF), US Government, Bank for International Settlements (BIS), World Bank and Inter- American Development Bank (IDB). As part of the program the Government has announced its intention to accelerate the privatization of major state-owned enterprises, mainly in infrastructure, with a view to enhance efficiency and improve the competitiveness of the Mexican economy. The program includes a large number of entities in telecommunications, energy and transport. Compared with other programs in Latin America and other regions, this is one of the most extensive privatization programs. The ambitious goal is to obtain sales revenues of US$6 billion in 1995 and US$6 to 8 billion in 1996. 5. The Government is advancing at a very fast pace in preparing the various sectors for privatization. The privatization of container terminals in four major ports is the most advanced and the call for tenders was published in the Official Gazette on February 23, 1995. Concessions for two major terminals were awarded on July 7, 1995. Deregulation of basic telephone services and rail privatization are being pursued aggressively with basic laws already submitted to Congress in April 1995. In a major departure from past policy, the Government also introduced a law on natural gas deregulation in Congress in April 1995. Groundwork has started in the areas of airports, roads, radio spectrum auctions, satellite privatization, power generation and secondary petrochemicals. Now that the immediate efforts to put in place a macro- economic stabilization program are no longer dominating the attention of top policy makers, the pace of reform in infrastructure is accelerating further. In support of the privatization process, however, a host of issues related to privatizing infrastructure firms with natural monopoly characteristics need clarification and analysis, e.g., design of market structures and regulatory arrangements, concession design, public procurement rules, contracting practices, rules for issuing government guarantees, and the development of appropriate financial infrastructure for financing investments, including means of securing credit, issuing insurance contracts, etc. Lack of clarity about these matters has previously been a major obstacle for infrastructure privatization and the conclusion of financeable deals.  3 6. Rationale for Bank Involvement. This project is fully consistent with the World Bank Group's Country Assistance Strategy for Mexico for the period FY96-98, which was discussed by the Board in June 1995. The Bank is supporting the Government's program in the short term by providing assistance in three key areas: (i) resolution of the macro-economic and financial crisis; (ii) strengthening of programs to assist the poor and those who will be most affected by the crisis; and (iii) acceleration of the program of infrastructure privatization. This project is the first step in assistance for the privatization effort. In particular, the project supports the longer-term objectives of furthering private sector development and improving infrastructure services. Infrastructure bottlenecks and inefficient services have contributed to the high cost of doing business and to low growth in recent years. Privatization of key infrastructure services within an appropriate regulatory framework will be an important step in the Bank's support for the Government's longer term strategy of stimulating productivity and growth in Mexico. 7. The Bank is well positioned to provide assistance to the Government in the privatization of infrastructure. The Bank has substantial worldwide experience in privatization, particularly in the areas of competition, industry and sector structure, and legal and regulatory issues. In Mexico, the Bank has played an active role in supporting the macroeconomic and sectoral reforms and has maintained an intensive dialogue on infrastructure strategy drawing on its substantial knowledge of the major sectoral issues and the key institutions. In power, the Bank has a longstanding relationship with the Federal Electricity Commission (CFE), and supported the newly created Energy Regulatory Commission (CRE). It also assisted the Government in preparing the Electricity Law that was passed in 1992. In transport, the Bank recently advised on a sector strategy and, prior to the onset of the crisis, was advising on privatization options for railways with the Mexican National Railways (FNM) and on ports with the Secretariat of Communications and Transport (SCT). In telecommunications the Bank provided a Technical Assistance Loan to SCT in May 1990 (Ln. ME-3208) in support of the privatization of TELMEX and has maintained an advisory relationship as part of project supervision. In addition, to support the implementation of the Government's strategy, the project would be followed by new Bank operations, in the form of loans or guarantees. 8. Equally important, the Bank's participation in the program can enhance the credibility of the Government's efforts. Investors are scrutinising closely the Government's commitment to privatization and will assess carefully the legal and regulatory framework, concession design, supply and offtake arrangements (e.g. in power), and the transparency of the privatization process. Partial policy guarantees imay be required in some cases. The Bank can be of assistance in all these areas. Finally, the Bank has an important role to play in emphasizing the importance of choosing sound market structures, providing for consistency among subsectoral approaches and designing adequate regulatory systems. Experiences from other countries suggest that, bec. e of the preoccupation with revenue generation, these  4 matters may be neglected in the early days of privatization. One of the Bank's crucial roles, therefore, will be to work with the Government to ensure that the regulatory framework, institutional capacities and processes that are essential to a private infrastructure system, are dealt with now. 9. Project Objectives. The project aims to: (i) help Government choose structural options for sector reform; (ii) develop a sound legal and regulatory framework in support of privatization; (iii) reduce, and if possible, eliminate constraints to privatization in sectors covered by the loan; and (iv) provide support to the privatization preparation process, through the Interministerial Commission on Privatization (CID, para. 17). 10. Project Description. Project activities would include: (i) hiring consultants to assist in the analysis of sector structure, the development of strategic options, policies and regulations; (ii) hiring consultants to design and participate in the privatization process; (iii) financing participation in training programs and other human resource development activities; and (iv) procurement of necessary software, hardware and related equipment. The project is described fully in the Technical Annex. The Project Implementation Plan, attached to the Technical Annex, provides information on the expected output, forms of assistance, and timing of activities financed by the project. Cost and disbursement estimates are provided in Schedules A and B. 11. Several impacts are expected from the project, depending on the requirements in each sector: (i) design of sound market structures and appropriate regulations in areas where firms retain natural monopoly characteristics; (ii) sectoral privatization strategies (e.g. in power, satellites, ports, airports) and decisions on specific strategic issues (e.g. railway concessions, radio spectrum auctions); (iii) new or revised legal frameworks at both sector and cross-sectoral levels that provide an enabling environment for private participation in infrastructure; (iv) a strengthened process for privatization, including a robust program of information dissemination and consensus building; and (v) new or strengthened regulatory agencies. 12. Cross-sectoral assistance (13% of total project costs). Two types of assistance would be provided. First, expert legal, financial and economic advisors would be retained to help the CID ensure consistency among privatization approaches in the various subsectors. Such consistency relates inter a/ia to foreign investment regulations, rules governing concessions, application of anti-trust regulation, tax, accounting and valuation issues, labor issues, treatment of debt restructuring and other liabilities including pension liabilities, implications of environmental law, alternative dispute resolution procedures, approaches to design and implementation of regulatory institutions and financial regulations. Second, special studies and training programs for the CID and staff of the regulatory agencies would be supported in the above areas to develop effective and sustainable policy approaches.  5 13. Electricity and Secondary Petrochemicals (33% of total project costs). For the electricity sector, the loan would first support the development of restructuring and privatization options that minimize the need for Government guarantees and maximize the degree of effective competition in the power sector within parameters set by the legal system. This would include design of an appropriate regulatory framework for the power sector. Subsequently, financial, legal, engineering and management consulting advisors would be funded to help implement the Government's chosen strategy. Lastly, the loan would help with strengthening the regulatory institutions for the power sector. To support secondary petrochemical privatization, the loan would fund advisors for the development of a strategy along with required legal advisors and technical consultants. 14. Transport (31% of total project costs). In the ports sector, the loan would fund implementation plans for further operating concessions, creation and implementation of a regulatory system for terminals and port authorities, and assistance for furthering the privatization preparation process. In the railway sector the loan would fund preparation and implementation of a detailed restructuring plan, including an inventory and valuation of existiig assets, environmental assessments and the establishment of an adequate regulatory framework, followed by assistance in the privatization preparation process including bid preparation, and the establishment of regulatory institutions. In the airports sector, the loan would fund an inventory and valuation of the airport authority's (ASA) assets and detailed privatization strategies for specific airports. As in the other sectors, design and establishment of an appropriate regulatory system would be supported. 15. Telecommunications (17% of total project costs). Activities to be financed in the telecommunications sector include: (i) for deregulation of basic telephone service, expert assistance on competition policy, tariffs, and interconnection; (ii) in the area of satellite operations, consultants to assist on strategic, policy, and regulatory matters, and legal and financial advisers for preparing the sale; and (iii) for modernizing radio spectrum management, consultants to help design the auction system (including clarification of existing rights to the spectrum) and guidelines for implementation. A second broad area of assistance would relate to improving the regulatory institutions. 16. Project Financing. Estimated total project costs are US$46.0 million. (Schedule A) They include: (i) cross sectoral support, US$6.0 million; (ii) power and secondary petrochemicals sector, US$15.25 million; (iii) transport sector, US$14.35 million; (iv) telecommunications, US$7.7 million; and (v) price contingencies US$2.7 million. The Bank would provide US$30 million and the Government the remaining US$16 million. Retroactive financing, in an amount not exceeding US$3 million, would be available for expenditures made after April 1, 1995. A special account of up to US$2 million would be maintained by the Borrower and the Executing Agency at the Banco de Mexico (BANXICO) to facilitate payments under the loan.  6 17. A fixed rate US dollars single currency loan is proposed in accordance with the Government's request. The loan would have a repayment period of up to 15 years; and each semester's disbursements would have a maturity of 12 years from the rate fixing date, including 3 years grace. The Government of Mexico is eligible for single currencv loans. The proposed US$30 million loan represents 3 percent of the FY96 lending program for Mexico (US$920 million). 18. Project Implementation. The United Mexican States would be the Guarantor for the loan made to NAFIN, a state-owned development bank (the Borrower). Execution of the project would be undertaken by the newly established CID, which is headed by the Secretary of Finance and Public Credit (SHCP) and comprised of the Secretaries of Commerce and Industrial Development (SECOFI), Control and Administrative Development (SECODA), and Labor. The President of the Federal Competition Commission is a permanent observer. Sector ministries and entities (e.g. SCT) participate in the CID for matters pertaining to those sectors. The CID will have a small secretariat and will be supported by entity-specific privatization commissioners attached to the relevant line ministries. 19. To support immediate needs for technical assistance, the Bank is providing substantial direct support to help develop the overall strategy and sectoral policies, and, in particular, assistance in the drafting of sound laws and regulations. This assistance, which will continue throughout the project, has so far taken the form of policy notes in response to requests by the authorities, draft terms of reference, the organization of consultations with international experts in relevant areas, and comments on draft documents the Government has submitted to Bank experts. Six workshops on railways, power sector restructuring, regulatory policy, spectrum auctions, telecommunications deregulation, satellite privatization have already been organized. 20. The Bank's assistance strategy is being coordinated with both IDB and the IFC. This coordination began with an aide-memoire on privatization strategy which was supported by all three institutions and issued on January 13, 1995 to the Government at the end of a joint mission. The IDB is exploring ways to utilize its Multilateral Investment Fund (MIF) in support of the program. IFC is similarly exploring ways to support the privatization process and to arrange financing and securitization for new investment projects. 21. Project Sustainability. By supporting both a comprehensive policy for the privatization of major infrastructure sectors and the implementation of the privatization process, the project will help the Government: (i) improve the economy's competitiveness; and (ii) restructure its balance-sheet in support of macro- economic stabilization. The project's emphasis on designing adequate regulatory systems - a matter often neglected in the heat of privatization - is crucial for arriving at sustainable policy solutions.  7 22. Lessons from Previous Bank Involvement. The design of this project draws on the lessons learned from the experience of the Bank in the delivery of technical assistance and in support of privatization to many countries, including Mexico. As stated above (para. 7), technical assistance loans are currently being implemented, one in telecommunications and the other in the financial sector. The design of the program emphasizes support for sound early choices of market structure, adequate cross-sectoral coordination, privatization strategy and the establishment of adequate regulatory systems. These are all activities shown to be crucial for long-run success and where the Bank has potentially the greatest impact. In later stages of the privatization process assistance from investment banks and other technical advisors will become more important. General lessons for technical assistance projects, of course, also apply, i.e. the importance of Government commitment, a strong implementing agency, a clearly defined program of work, and measurable project outputs are all essential. Regular supervision, accompanied by a substantive policy dialogue are also needed for success. The project has been designed with these lessons clearly in mind. 23. Environmental Aspects. The project is expected to have no adverse environmental impact and is classified under category C. The loan will make available financing for studies on environmental and resettlement issues to be prepared as part of the privatization process in sectors where such plans are relevant. 24. Program Objective Categories. The project supports private sector development, and contributes to the institutional strengthening of regulatory authorities in Mexico. It aims to raise efficiency and productivity of the economy, and indirectly contribute to job creation, competitive industrial organization and improved environmental conditions in several subsectors. 25. Procurement. Two types of procurement would be undertaken through the loan: (i) consultant services; and (ii) goods, primarily computer hardware and software. As financial agent, NAFIN would act as the coordinator and adviser to the CID, which would be responsible for all procurement activities under the loan. Selection and appointment of consultants for studies, technical assistance and support of project execution would be carried out in accordance with the Bank's "Guidelines: Use of Consultants by the World Bank Borrowers and by the World Bank as Executing Agency (August 1981). All contracts with lawyers or law firms will follow specific Bank guidelines for their selection and appointment. Procurement of goods would follow the Bank's Guidelines for Procurement (January 1995). To the extent feasible and practical, the procurement of goods would be done by grouping the various items in bid packages estimated to cost US$350,000 equivalent or more. Packages in this category would be required to follow International Competitive Bidding (ICB) procedures using the Bank's Standard Bidding Documents. National Competitive Bidding (NCB) would be undertaken for goods estimated to cost more than US$150,000 but less than US$350,000 using standardized bidding documents agreed with the Bank. For quipment that cannot be grouped in packages valued at  8 US$100,000 or more, international and national slhopping procedures would be followed by comparing price quotations received from at least three suppliers. 26. Bank review of procurement procedures would be as follows: (i) for consulting services, the Bank would conduct prior review for all contracts exceeding US$50,000 equivalent for individuals and US$100,000 equivalent for firms; and for procurement of goods the Bank would review ex ante documentation pertaining to each ICB and the first two NCBs; (iii) all other procurement documentation would be subject to ex post review. This review process would result in a prior review of approximately 75 percent of all Bank financed contracts for goods and 90 percent of all Bank financed contracts for consulting services, both expressed in value. 27. Accounts and Audits. NAFIN and the executing agency would maintain adequate records to reflect all expenditures made under the project, in accordance with sound accounting practices. The accounts and statements of expenditures would be audited each year by auditors satisfactory to the Bank, in accordance with appropriate auditing principles consistently applied. The audit report would be submitted to the Bank not later than six months following the close of the fiscal year. 28. Project Benefits. The project would enable the Government to improve economy-wide productivity and competitiveness through more efficient delivery of key infrastructure services. Additionally, the project will aid the privatization preparation process, and assist the Government in making critical decisions about market structure, consistency across sectors and the legal and regulatory framework. The project will also raise revenues from the sale of assets, allowing the Government to restructure its balance-sheet in support of macro-economic goals. 29. Financial Benefits. The Government has selected a fixed rate US dollar single currency loan to improve its overall liability management and reduce its risks. It considers US dollars to be an appropriate currency for its debt management strategy, and a fixed interest rate basis appropriate to diversify its interest rate risk, given the large share of variable rate funding in its overall portfolio and its limited access to fixed rate funding from other sources. 30. Risks. The project faces several important risks. The first is that the privatization program may be weakened in the face of opposition from unions, the state owned enterprises themselves, private sector groups seeking to limit competition, or other organized groups. The broad composition of the CID, however, and planned activities (such as workshops, public relations campaigns, and briefings with the domestic and international investors) will mitigate this risk. Continued macroeconomic instability could also damage the program (e.g. by increasing country risk for investors and by giving greater urgency to quick - though ultimately damaging - dispositions of assets before adequate legal and regulatory structures are in place). An unfavorable public reaction to the Government's economic program, or to the privatization program itself, nay make it much more difficult to eventually effect the  9 sales or concessioning process. The Government's economic plan, which was announced in March 1995, is currently succeeding in stabilizing the exchange rate. The Government is also taking steps to improve its relations with international investors by providing better access to central bank information and by undertaking more frequent consultations, and is pursuing an active public information campaign. 31. Agreements Reached: During negotiations the Bank and the Government agreed to the following: (i) an initial workprogram for the CID, as contained in the Technical Annex; (ii) arrangements for a project launch seminar, (iii) the content of project's semi-annual review, including the impact indicators to be utilized in the assessment of the project during the midterm and final reviews. 32. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. James D. Wolfensohn President Attachments Washington, District of Colombia August 2, 1995  10 Schedule A MEXICO INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT Project Costs (US$ Millions) US$ Equivalent PROJECT SUB-COMPONENTS Foreign Cost Local Cost Total 1. CID 4.75 1.25 6.00 2. Telecommunications a. Satellites 0.75 0.25 1.00 b. Radio Spectrum Management 2.00 1.00 3.00 c. Basic Telephone Services 2.00 0.50 2.50 d. Regulatory Entity 0.80 0.40 1.20 SUB-TOTAL 5.55 2.15 7.70 3. Electricity and Secondary Petrochemicals a. Secondary Petrochemicals 2.00 1.00 3.00 b. Electricity 10.00 2.25 12.25 SUB-TOTAL 12.00 3.25 15.25 4. Transport a. Ports 2.00 0.50 2.50 b. Railways 5.00 1.50 6.50 c. Airports 4.35 1.00 5.35 SUB-TOTAL 11.35 3.00 14.35 5. Price Contingencies 1.70 1.00 2.70 TOTAL 35.35 10.65 46.00 Financing Plan (US$ Millions) Foreign Local TOTAL Bank 27.80 2.20 30.000 Government 7.55 8.45 16.000 Total 35.35 10.65 46.00  11 Schedule B Page 1 of 2 MEXICO INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT Procurement and Disbursement Arrangements (US$ millions) Procurement Methods by Category (Bank financing shown in parentheses) Procurement Method ________ ~~~~~~~~~~Total Category ICB NCB Other'| N.B.F. 1. Consultant Services, 32.60 32.60 Training and Related Expenses b/ (25.55) (25.55) 2. Goods and Equipmentc/ 4.80 2.15 0.75 7.70 (3.40) (0.75) (0.30) (4.45) 3. Operating Expenses d 5.70 5.70 (0.00) (0.00) Total: 4.80 2.15 33.35 5.70 46.00 (3.40) (0.75) (25.85) (0.00) (30.00) N.B.F: Not Bank-Financed. a] Other category consists of shopping (goods) and employment of consultants. b/ Contract of consultants according to World Bank Guidelines. c/ Guidelines for procurement of goods and equipment. d/ Operating expenses consist of incremental salaries and benefits, taxes, and installation charges incurred by the CID and the line ministries.  12 Schedule B Page 2 of 2 MEXICO INFRASTRUCTURE PRIVATIZATION TECHNICAL ASSISTANCE PROJECT Procurement and Disbursement Arrangements (US$ millions) Disbursement Category Amount of the Loan Allocated Percentage of expenditures to be [ I __ __ __ __ _ __ __ __ _ financed 1. Consultant services, 25.55 100% training, and related expenses. 2. Goods and Equipment 4.45 100% of foreign expenditures and 85 % of local expenditures Total: 30.00 Estimated IBRD Disbursements (US$'000) l FY96 FY97 | FY98 ] Annual 12.00 10.00 8.00 Cumulative 12.00 22.00 30.00  13 Schedule C MEXICO INFRASTRUCTURE PRIVATIZATION TECNIGCAL ASSISTANCE PROJECT Timetable of Key Project Processing Events (a) Time taken to prepare: 5 months (b) Prepared by: SHCP, with Bank staff (c) First Bank Mission: January 1995 (d) Appraisal Mission Departure: March 1995 (e) Negotiations: July 1995 (f) Board Presentation: August 1995 (g) Planned Effectiveness: August 1995  IA Schedule D Page 1 of 3 STATUS OF BANK GROUP OPERATIONS IN MEXICO A. STATEMENT OF BANK LOANS (As of June 30, 19951 ..a . . . .*. . *. *.*. *. . ...* .* . *. . .* . . *. .~ ~. 115 loans fully disbursed 15,001.84 Of which SECALs. SALs, Program Loans, and Interest Support Ln. 1929-ME 1981 BANOBRAS Railway IV 149.88 Ln. 2331-ME 1983 BANCOMEXT Export Development 349.33 Ln. 2745-ME 1987 BANCOMEXT Trade Policy Loan I 498.63 Ln. 2777-ME 1987 BANCOMEXT Export Development II 246.37 Ln. 2882-ME 1988 BANCOMEXT Trade Policy Loan II 500.00 Ln. 2916-ME 1988 NAFIN Steel Restructuring 100.00 Ln. 2918-ME 1988 NAFIN Agricultural Sector Loan 300.00 Ln. 2919-ME 1988 NAFIN Fertilizer Sector 200.00 Ln. 3085-ME 1989 BANCOMEXT Financial Sector Adjustment 486.41 Ln. 3087-ME 1989 NAFIN Industrial Sector Policy 497.51 Ln. 3086-ME 1989 NAFIN Public Enterprise Reform 499.39 Ln. 3159-ME 1990 BANCOMEXT Interest Support Loan 1,260.00 Ln. 3207-ME 1990 BANOBRAS Road Transport & Telecom. 380.00 Ln. 3309-ME 1991 BANCOMEXT Export Sector 25.00 Ln. 3357-ME 1991 NAFIN Agricultural Sector Adj. ll 400.00 Subtotal 5,892.52 Ln. 2658-ME 1986 NAFIN Agricultural Dev. Proderith II 88.30 23.16 Ln. 2666-ME 1986 BANOBRAS Municipal Strengthening 40.00 0.34 Ln. 2669-ME 1986 BANOBRAS Solid Waste Management Pilot 25.00 7.50 Ln. 2824-ME 1987 BANOBRAS Urban Transport I 90.98 14.00 Ln. 2858-ME 1987 NAFIN Small/Medium-Scale Industry IV 100.00 0.30 Ln. 2916-ME 1988 NAFIN Steel Sector Restructuring 321.01 42.35 Ln. 3047-ME 1989 NAFIN Industrial Restructuring 250.00 9.01 Ln. 3083-ME 1989 NAFIN Hydroelectric Development 460.00 24.72 Ln. 3140-ME 1990 BANOBRAS Low-income Housing II 350.00 0.36 Ln. 3208-ME 1990 BANOBRAS Telecomm. Technical Assistance 22.00 0.07 Ln. 3271-ME 1991 BANOBRAS Water Supply & Sanitation 299.52 0.08 Ln. 3272-ME 1991 NAFIN Basic Health Care 180.00 52.71 Ln. 3310-ME 1991 NAFIN Decentralization I. Regional Develop. 350.00 2.29 Ln. 3358-ME 1991 NAFIN Technical Training III 152.00 47.29 Ln. 3359-ME 1991 NAFIN Mining Sector Restructuring 200.00 86.94 Ln. 3407-ME 1992 NAFIN Primary Education 250.00 82.18 Ln. 3419-ME 1992 NAFIN Irrigation & Drainage Sector 400.00 189.52 Ln. 3461-ME 1992 BANOBRAS Environment/Natural Resources 50.00 32.30 Ln. 3465-ME 1992 NAFIN Agricultural Technology 150.00 126.60 Ln. 3475-ME 1992 NAFIN Science & Technology Infrastructure 189.00 123.90 Ln. 3497-ME 1992 BANOBRAS Housing Market Development 450.00 118.29 Ln. 351S-ME 1993 NAFIN Initial Education 80.00 63.14 Ln. 3542-ME 1993 NAFIN Labor Market & Prod. Enhancement 174.00 92.48 Ln. 3543-ME 1993 NAFIN Transport Air Pollution Control 220.00 125.49 Ln. 3559-ME 1993 BANOBRAS Medium Cities Transport 200.00 177.57 Ln. 3628-ME 1993 BANOBRAS Highway Rehab. & Traffic Safety 480.00 324.62 Ln. 3704-ME 1994 NAFIN On-Farm & Minor Irrigation Network 200.00 180.39 Ln. 3722-ME 1994 NAFIN Primary Education II 412.00 373.57 Ln. 3750-ME 1994 BANOBRAS N. Border I Environment 368.00 352.00 Ln. 3751-ME 1994 BANOBRAS Water/Sanitation II 350.00 320.04 Ln. 3752-ME a> 1994 BANOBRAS Solid Waste II 200.00 200.00 Ln. 3778-ME 1995 NAFIN Rainfed Areas Development 85.00 69.86 Ln. 3790-ME 1995 NAFIN Second Decentralization 500.00 417.91 Ln. 3805-ME a> 1995 NAFIN Technical Education/Training 265.00 265.00 Ln. 3838-ME a> 1995 NAFIN Financial Sector T.A. 23.60 23.60 Ln. 38381-ME a> 1995 NAFIN Suppl. to Financial Sector T.A. 13.80 1380 Ln. 3911-ME a> 1995 NAFIN Financial Sector Restructuring 1,000.00 1,000.00 Ln. 3912-ME a> 1995 NAFIN Essential Social Services 500.00 500.00 Sub-total 9,489.21 5,483.38 Total 24,491.05 Of Which has been repaid 7,685.97 Total now held by the Bank 16,805.08 Amount sold : 92.34 Of which hes been repaid: 92.34 Total Undlsbursed 5,483.38 5,483.38 a> Not yet effective adeS: LA2CO Fle: N:\MdaSilvaldisburse\Max.c oMX.O-.9 5xli July 13, 1995  1 5 Schedule D M:XCO Page 2 of 3 STATD2I.rr OF LTC INVESnMrTS As of June. 30, 1995 (In Millions US Dollars) - Original Gross Commitents - Held Held UTndisb Fiscal Years LFC LFD by by incl. Committed Obligor Type of Business Loan, Equity Partic Totals IFC Partic Partic 1958 a Bristol de Mexico, S.A. Industrial equipment and . 52 - .52- - 1958/59 a! Industrias Perfect Circle Industrial equipment and .80 - - .80 - - - 1961 a! Acero Solar. S.A. Industrial equipment and - - .2 8 . 28 - - - 1962/65/66/68 a! Fundidora Monterrey. S.A. Iron and steel 1.81 2 1.4 5 .48 23.74 - - - 1963 a! Quim.ica del Rey, S.A. Chemicals and petrochemic .07 - .68 . 75 - - - 1 9 63 a/ Tubos do Acero do Mexico, Iron and steel .81 - .19 1.00 - - - 1964/66 a/ Industria del Hie-rro, S.A. Industrial equi-pment aLnd - 1.96 - 1.96 - - - 1570 a! Minera del Norte, S.A.. Iron and stool .75 - .75 1.50- -- 1971 a! Celanese M6exicana, S.A. Textiles 8.00 - 4 .00 12 .00- -- 1912 a/ Promotora do Papel Period Timber, pulp and paper - .03 - .03- -- 1973/7.9 a! Cementos Veracr-u:, S.A. Cement and construction m 11.35 - 4 .50 15 .85 - - - 1974/81 a! Cancun Aristos Hotel Tourism .98 .3 2 - 1.30 - - - 2 97 5/7 8 a! Mexinox, S.A. Iron and steel 12.00 3.18 - 15.18 - - - 1978/81/84 a/ Papeles Ponderosa. S.A. Timber, pulp end paper 6.20 4.96 4.50 15.66 - - - 1978/95 Tereftalatos M6exicanos. S Chemicals and petrochemic 3 9 .00 - 2 0 .00 59 .00 20 . 00 2 0 .00 - 1979/81/87 Hotel Camino Real Ixtapa. Tourism - 4 .2 0 - 4 .2 0 4.20 - - 1979/64 a/ taprosas Toltaca. do mexic Cemernt and constructionsm 30.003 7 .9 5 138.00 175.95 - - 1979/91 Conductores Monterrey, S. Industrial equipment aLnd 8.41 - 13 .00 21.41 1.28-- 1980 a! Industrias Resistol, S.A. Chemicals and petrochemic 8.00 - 17.00 2 5 .00 - - 1980 a! Minera Real de AnLgeles. S Nonferrous metals 3 0 .00 - 80 .00 110.00 - - - 1980 a/ Vidrio Plano de Mexico. S Industrial equipment and 15 .0 0 - 99.90 114.90 - - - 1981 a! Grupo Industrial Alfa S.A Food and agribusiness 15.50 - 44.00 59.50 - - - 1981 a/ Utniversal do Valores, S.A Fond and agribusiness 8.30 3 .00 5.00 14 .3 0 - - - 1984 a/ Capital Goods Facility Development financing 34 .0 0 - 68.00 100 .0 0 - - - 1984/88/94 Metalsa, S.A. Automotive and accessorie 32 . 00 1.40 3 5 .00 6 8 .40 24.00 35 . 00 25 .0 0 1985 a/ Proteison, S.A. do C.V. Food and agribusiness 1.95 .82 - 2.77 - - - 1985/90 Grupo Primex, S.A. do C.V Chemicals and petrochemic 32 .00 - 4 .4 0 36.40 11.04 - 1986 a/ Celulosa y Papel do Duran Timber, pulp and paper 10 .00 3.07 - 13.07 - - 1987 a/ Agro Industrial Exportado Food and agribusinese 1.50 .50 - 2.00 - - - 1987 a/ Industrias SLulfamex. S.A. Fertilizers 2 .00 .50 - 2.50 - - - 1988 a/ Sealed Power Mexicana, S. Automotive and accexsorie 9.00 - - 9.00 - - - 1.988 Vulica Shipping Company L Industrial services - - 0.00 16 .503 - - 1988/91/92/93 Apasco. S.A. do C.V. Cement and construction m 156.41 - 40 .00 196.41 21.45 40.00 - 1988/92 Calizas Industriales del Mining 73 .00 - - 73 .00 24.14 - - 19 88/9 5 Sigma Alimentos, S.A. de Food and agribusiness 40.96 7 .0 0 3 2 .00 79.96 26.50 32 .0 0 - 1989 Banca Lerfin, S.N.C. Capital markets 60 .00 - - 60 .0 0 5 0 .00 - - 1989 Cemesx. L.A. Cement and construction m 60 .00 - 8.00 68.00 11.43 - - 1989/92 Fomento Economico Mexican Food and agribusiness 80 .00 27 .6 0 - 1 07 . 60 57.78 - 1989/92 Polimar, L.A. de C.V. Chemicals and petroche=ic 19.10 - - 19.10 8.10 - 1990 a/ Bancomer, S.N.C. Capital markets 2 0 .00 - - 2 0 .00 - - - 1990 Banco Nacional do Mexico. Capital markets 6 0 .00 - - 60.00 37 .0 5 3.75 2.40 1990/92 Grupo Condunex S.A. de C. General manufactuaring 3 5 .00 9.54 18 .0 0 62.54 24.06 9.00 - 1 9 90/94 Indelpro. L.A. do C.V. Chemicals and petrochem.ic 31 . 00 - 3 .0 0 3 4 .00 24.75 1.13- 1991 a/ The Mexico Equity and Inc Financial ser-vices - 6 .57 - 6 .57 - - 1991 Petrocel, L.A. Chemicals and petroche=ic 32 . 00 - - 32.00 26.00 -- 1991 Vitro Flotado, S.A. de C. Industrial equipment and 2 5 .00 - 101.00 12 6. 00 23.75 5 0 . 50 1991/92 Vitro S.A. Industrial eqruipment and - 18.21 - 18.21 10.17 -- 1 9 92 Aislantes do Le6n, S.A. d Automotive and accessoris 10.00 7 .03 - 17 .0 3 9.00 - 1992 Banco Mercintil del Norte Capital markets 2 0 .00 - - 2 0 .00 - - - 1992 Celular de Telefonia. L.A. Industrial services 15 .00 1.00 37 .00 5 3 .00 18.00 3 6.7 3 2. 88 1992 Grupo Financiero Probursa Capital markets - 7 .5 0 - 7 . 50 7.50 - - 19.92 Grupo Industrial Bimbo. S Food and agribusiness 25.00 - 75.00 1 00 . 00 21.43 58 .3 3- 1992 Grupo Posadas. S.A. de C. Tourism 20.00 3 .7 2 33.50 57 .22 20.00 3 3 .5 0 1992 The Mexico City Toluca To Industrial aeratecs 13.75 - - 13.75 9.55 -- 1993 Celulosa y Derivados, L.A Textiles 11.00 - 2 6. 00 3 7 .00 11.00 24.07 1993 Mastorpak. S.A. do C.V. Timber, pulp and paper 12 . 00 - 2 8. 00 40 . 00 12 .0 0 2 5 .93- 1994 Alimentos Naturalos Sabro Food and agribusiness - - - 0 .0 0 3 .0 0 -- 1994 Auruam-HellOr Factoraje. S Capital markets - .98 - .98 .98 - - 1994 Grupo Idesa L.A. do C.V. Chemsicals and petrochemic 1 5 .00 8.00 42 .50 6 5 .50 23.00 42.50 34 .5 0 1994 Grupo Operador do Termina Industrial services 4 .0 0 2.00 2.64 8.64 3 .71 2.64 2.64 1994 internacional de Ceramica Cement and construction mn 2 1. 00 - 17 .5 0 3 8 .50 21.00 17.50 - 1994 Pyosa, S.A. do C.V. General manufacturing- - - 0 . 00 9.01 - - 1099 4/95 Mexicana. do Cobre, S.A. d Nonferrous metals 5 0 .00 - 4 5. 00 9 5 .00 50.00 45.00 35.00 1995 Arancia L.A. do C.V. Food and agribusinees - - 0.00 6.78 - - 1995 Daring Venture Partners d Financial services - .15 - .15 .15 - 1 9 95 Compadiia Tratadora de Ag-u Industrial services 7.11 - - 7.11 7.11 -- 1995 M4explus Puertos L.A. do C Industrial serv,ices - 1.04 - 1.04 1.04 - Total gross commitments b/ 1234.28 153.68 1046.82 2434.78  16 Schedule D N orsrCSNVSTKZTS Page 3 of 3 As of June 30, 1995 (In Millions US Dollars) - Original Gross Coitments - Held Sold Undisb Fiscal Y3ers rrc TIC by by iel. Committed Obligor Type of Business Loan Equity Partic Totals TiC Partic Partic Less cancellations, terminations, repayment & sales 636.64 S6.86 5689.24 1302.74 Total cos itnmnts now hold c/ 597.64 56 .82 477.58 1132.04 634.44 477.58 102.42 Pending comaitaents Apasco, SA. de C.V. Cmment and construction a 20.00 - 80.00 100.00 Raring Venture Fund Capital markets - 10.00 10.00 IPTUMSA 18.00 - 12.00 30.00 Signm Alinantom, S.A. de Food and agribusiness - 12.00 12.00 Total pending cormitments 38 .00 10.00 104.00 152.00 Total comitments held and pending commitments 635.64 66.82 581.58 1284.04 Total undisbursod commitments 47.40 - 33.02 102.42 &/ Investments which have been fully cancelled, terminated, written-off, sold, rede emd, or repaid. b/ Gross cositments consist of approved and signed projects. c/ Held co-itaents consist of disbursed and undisbursed investments.   l ::