Mexico - Mining Sector Restructuring

 ICRR 10386 Report Number : ICRR10386 ICR Review Operations Evaluation Department 1. Project Data : OEDID : OEDID: L3359 Project ID : P007672 Project Name : Mining Sector Restructuring Country : Mexico Sector : Mining & Other Extractive L/C Number : Loan 3359-ME Partners involved : Prepared by : Farrokh Najmabadi, OEDST Reviewed by : Alain A. Barbu Group Manager : Gregory Ingram Date Posted : 07/14/1999 2. Project Objectives, Financing, Costs and Components : The objectives of the project were : a) to support the Government's program to deregulate the mining sector and stimulate private domestic and foreign investment; b ) to build a broader financial market support to the mining industry; and, to help finance the anticipated surge in demand for investment funding . The project included two components: an investment component of US$ 191.5 million; and an institutional development component of US$ 8.5 million. The institutional component was to address training of Mining Development Commission's personnel in project evaluation and supervision, upgrading of Mineral Resources Council's (CRM) capability to generate, process and make available geological information to interested parties, establishing mining -specific environmental standards, modernizing the Directorate General of Mines' (DGM) administrative and control systems, and carrying out a study to evaluate the results from the changes in the mining regulations leading into recommendations for any needed policy adjustments. The total project cost came to US$ 375.4 million of which US$ 171.7 million was financed by the Bank, US$ 21.3 million by the intermediary banks, US$ 54.7 million by the Trust Fund for Mining Development, (FFM) and US$127.7 million by the small and medium- sized mining enterprises themselves . At completion, the undisbursed balance of the Bank's loan amounting to US$ 28.3 million was canceled. 3. Achievement of Relevant Objectives : The objectives of the project were broadly achieved . The project financed 171 subprojects. The ICR reports that, incrementally, some 4068 jobs were created and that Mexico's output of mining products increased at an average annual rate of 6 percent. Reportedly, investments totaling more than US$ 5 billion were registered by the domestic and the foreign private sector between 1992 and 1998. Although the studies regarding the evaluation of the mining regulations and policy adjustments were canceled ( based on the belief that the existing regulations had prove adequate), the achievement of the other institutional objectives was noteworthy . 4. Significant Achievements : According to the ICR: a) stronger government agencies responsible for the sector; b ) a more effective implementation of the new Mining Law Regulations; c ) a more equipped and capable geological research institute; d ) the release of some 8.7 million hectares of national mining reserves for prospecting by the private sector; e ) creation of a broader financial market for the mining sector; and, f ) an enhanced capability to evaluate and supervise small and medium- scale mining subprojects. 5. Significant Shortcomings : Due to the restructuring of the Government's organization, dispersal of the environmental agencies and lack of allocated funds, the preparation of environmental regulations for the mining sector was seriously delayed and still remains uncompleted. Many of the quantitative objectives of the project such as the annual real mining sector growth, the employment increase and the growth of the exports of the mining products were only partially realized . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory  Institutional Dev .: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Unsatisfactory 7. Lessons of Broad Applicability : Government ownership and commitment to reform remains one of the most important guarantors of success in projects whose aim it is to deepen the process and to prepare the ground for a more enhanced participation of the private sector in economic activities . Projects that are prepared after the basic reforms have been put in place (in this case the New Mining Law) have a better chance of success . 8. Audit Recommended? Yes No Why? Major gaps in the assessment of the impact of the project's investment component . 9. Comments on Quality of ICR : The quality of the ICR is unsatisfactory . Although the ICR provides adequate coverage of the project's institutional component, its coverage of the investment component (96 percent of the loan amount) is extremely superficial: at the very least it should have included relevant data /information on the characteristics and impact of the 171 subprojects that were partially financed by the Bank's loan (possibly based on an analysis of the physical, financial and social benefits of a representative sample ) and on the quality of the sub -loan portfolio (incl. initial repayment performance). The ICR also confuses the need to discuss the actions that are required to lock in the benefits of this project (i.e. future operation as defined in the ICR Preparation Guidelines ) with any future Bank lending operation in the subsector.