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Home , Rail transport in Mexico

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INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

AN APPRAISAL OF

THE DEVELOPMENT PROG.RAM

,L xIVLrl.. I..-

VOLUME V

ANNEX IV - TRANSPORTATTIN Public Disclosure Authorized

IP%AR T I ' Road and Rail The Railway Program Railway Revenues and Accounts PART II Roads and Road Transport Ports and Merchant Shipping Airports and Civil Aviation

! 'Al3 1A A6 Public Disclosure Authorized

Department of Operations Western Hemisphere CURRENCY EQUIVALENTS

U.S. $1 = 12.49 pesos 1 peso (Mex$) = U . S. $. 08 1 million pesos = U.S. $80, 000 rlAT3 1 1'T 1 E! 7rAT1_._

AXNNE1X E !'J Part I

Page

TR.MkSPRTOATL)N ...... l

Road and Rail ...... 3 The MHajor Traffic Patterns ...... 6 Spheres of Operation ...... 8 Public Policy and the Railwzays ...... 14

The Railway Program ...... 16 Recommended Investment Program, 1963-65 ...... o...... 19 Freight Traffic Trends ...... 21 Passe7rger Traffic ...... 27 Locomotive and Rolling Stock Requirements ...... o.o. . 29 Proo,ram of F.C. Nacionales de Mexico ...... 38 Program for Ferrocatrril del Pacifico ...... 44 F.C. Del Sureste and F.C. Unidlos de Yucatan . ... 48 F.C. Sonora-Baja California ...... 0 0 *. 49 F.C. Chihuahua al Pacifico ...... $0...... 50 F.C. Coahuila y Zacatecas ...... 52 Nel;w Construction Projects ...... 52 Investment Planning ...... 54 Foreign Exchlange Component of the Pro-ram ...... 55

Railway Revenues and Accounts ...... 56 Analysis of Railway Deficits ...... 60 The Railway Cost Structure .# ...... 63 Passenger Rates and Revenues ...... 66 Freight Rates an3d Revenaes ...... 75 Viabilitv of Light Trafficked Lines ...... 83 Labor Costs and Social Services ...... 87 Normalization of Social Service Costs ...... 91 Compensation for Carr-ying :"iail ...... 92 Deoreciation of Fixed Assets and Interest Charges ...... 93 Interest Charges ...... 94 Railway V-i2hilitv on a Normalized Basliq ...... 95 iNorraalized Position of the Nacionales de M'lexico ...... 98 M!orruqli,7p Posi1ition of t'h FPrrror>rri1 di1 Pnnifin. 10n Positions of the Other Railways ..... 103 APP\1DITY', .I TA.9:ES, PageEag

Tabl]e 1. Geographical Distributio of Various LconolULic Indicators ...... - ...... 106 Table 2. T-a4ngs and Tl'loi o ,ain Foodtuffs bIy Rtail and iegions, 1959 ...... 107 Table 3. 141Ct-all and M`14ineral E.portusby Point of Export, 196i 10U Table 4. Freight Ton-Kilometers by Railway, 1952-61 ...... 109 Table 5. Averac Lengthlg ofl Taul by -ailways, ...... i Table 6. Tonnages of Full and Less Ihan Car Load Commercial Traffte by Rail-wa,r:s 952 and 1961 ...... iii Table 7. Tonnage Moved on Mexico's Railways - Total Product Gro-ups and Selected Commodities .. .. . Table 8. Composition of Railway Traffic by Main Groups and Commodities (Full Car Loads) . 113 Table 9a Passenger Traffic Statistics, 1961 .. 114 Table 10. Past and Projected Passen.er and Revenue Freight ron-Kilometer (Chart) ...... 115 Table 11. Locomotive Requirements for the F.C. Nacionales de Mexico, 1965 ...... *. 116 Table 12. Comparison of Railway Idork Done per Sian Emaployed ..... 117 Table 13. Proposed and Recommended Investment Program, 1963-65 Nacionales de Mexico O...... *...o...... 118 Table 14. Proposed and Recommended Investm.ent Program, 1963-65 Del Pacifico ...... 119 Tab:Le 15. Proposed and Recommended Investrnent Program, 1963-65 Sonora-Baja California.120 Table 16. Proposed and aeconmmen-led Investrennt Program, 1963-65 (Inidos de Yucatan ...... a 121 Table 17. Proposed and Recommended Investment Program, 1963-65 Chihuahua al Pacifico .. 122 Table 18. Proposed and Recommended Investment Program, 1963-65 Coahuila y Zacatecas .123 Table 19. Propnosed and Recommended Investment Program, 1963-65 Del Sureste *...... aa** o*o*a...... **.*.**. . .* 1211. Table 20. Proposed and Recommended Investment Progrmn for New Railway Construction, 1963-65 .. 125 Table 21. Breakdown of Recommended lnvestment Prog ram by Nlain Items by Railways .. 126 Table 22. Operating Results F.C. i\lacionales de liexico .* ...... > 127' Table 23.- Operating .Results F.C. Del Pacifico ...... 12L Table 24. Operating Results F.C. Sonora-Baia California .12r' Table 25. Operating Results F.C. Del Sureste ...... 13C) Table 26. Operating Pesults F.C. Unidos de Yucatan ...... 13]. Table 27. Operating Results F.C. Chihuahua al Pacifico ...... 132. A'Dfl1I?TfTV rVAtnTVQ OC)TmTrhT fl, ,

M-1- -cr.r_Cl - A -- A TT- - 1 -; -. 4 rf- 4-4 V -- ...... 14-- -nK- /_r .LIZULJJ> 4,t . I'; UJII110LC|L_L-41 CLIA W i. l _ W VW. - a UA16 Ott Q -1. U.L _Jl7w F.C. Nacionales de Iexico 133

able 297. IiMUId..alizd adL UrIU V±izd.±U tCLULLIn, I sulLLs, 196L7U 5) All Government Railways ...... 1314. Table 30. Cost of Transporting Goods on the F .C. ,NacLor1ales de Mexico, 1961 ...... 135-6-7 irHp S

Railways of Mexico - i902 ...... 17a Freight Traffic Flow (F.C. Nacionales de Mexico Railways) ...... 85

CHART

Costs and Revenues - 1961 (F.C. Nacionales de Mexico) ...... 68 A N M E X l;

TPAIN SPOKLATION

1. Both in the immediate past and in the recommended program for 1963--65 railwray investments account for about half of all public investments in transportation, highways for about 40 percent, and ports and airports for the small remainder. With such a predominant portion of investment going into rail and road, the -mission paid particular attention to these programs. Before forming a judgment as to the appropriateness of the planned levels of investment in roads and railwrays, the mission sought first to examine the present and expected future roles of each mode. For example, the mission has tried to assess whether the rapid growth in trucking has made part of the rail system or the services provided redundant. It has tried to answer such prior questions as: Are truckers able to compete because they are not paying the full share of the cost of highways'; "What are the reasons for the large and growing financial deficits on the railways? Are they a consequence of inefficiency or institutional limitations whichi reflect transport policy?' Should the program for the railroads be designed to run them down slowly if they are high-cost carriers rather than modernize and rehabilitate them?" Has the Government's inland transport policy, if any, resulted in a gross mis-allocation of resources or has it provided a catisfactory transport system which meets the needs of the economy?'

2. Within the limits of time and information available, the mission sb,r]j i the exi .-in and nrosnpet.1ve Ernrfir flows in Mexicoj the real costs of transport by road and rail, the structure of transport user charges, and the appropriateness of the nlanned rail and road investments to meet the growing and dynamic demand conditions for road and rail transnort facilltles. The broad conclusion of the mission is that. an investment program for 1963-65 considerably larger than the level of expenditures 1r recent. years ls well usii.1fiedc boh±I f'or 1ailoasI andi h ghways

3. i7lexico has a w.el1-es_t.abll shed rail a 'ndoat_ra ot net.wrk-.L Br the first World War foreign private capital had already developed the main lines of the road system which wer-e subsequntly bought by the Govern- ment. The system has been expanded with the construction by the Government of the Snora-Baja Galifornia line, the 3reste line, nd, M-ost recently, the extension to the Chihuahua-Pacifico Railroad. The basic network, however, is sil the old one, -r,os-Po ,uf . J¾is now -nder the a., ,n-is+rat ic of two semi--autonomous government corporations--the National Railways of 1-1eK.Lo, C6iLA Llll ~I W-~L.LL. iCL-LLi. VCL%± * iiI -' UVWU OJ'YIJUVIJI, VVII41-1 J1,U6U LU1 Upj-O± ate 81 percent of the total present route-kilometers, accounted for over 79 percentl ofiall freiLght andu passenger01i trafi-LIn 19dL0±. Tl,e UUAlk Uofrecent railroad in,ist-ment 1has been1 usAd for the reh'abilitation and"Mode1r- ,at of these two systems. The recommended 1963-1965 railroad investment program would thistntnue rehabilitation a-d modern4zation process.

.4. highwa~ys-ysteIIL wu±uin by- c A 'A of moure recetui LLdLate, '4.~~m 14 has been rapidly expanded and improved. Between 1955-62 the highway network increased from 25,600 msRs. to 460,700 Kms. ine recommended 1963- 65 program would be a continuation of the still unfinished process of Ihighway deVelopment. Tne main elements oI the program are (a) the filling of some existing major gaps in the main highway network; (b) the up- grading of existing roads that now carry neavier traffic volumes than originally designed for; and (c) the introduction of all-weather secondary and tertiary roads to areas of the country in which economic activity is hampered by the lack of such facilities.

PUBLIC INVESTnENT IN TRA4SPORTATION (milions of pesos)

1963-65 Program 1960-62 Miission Actual Agency Plans Recommendation

Railways 2,566 7,625 4,101 Highways 2,120 3,861 3,861 Ports 256 1,150 470 Airports 135a/ 222 222

5,077 12,858 8,654

a/ Estimated

5. The aggregate figures for investment in transportation facilities, as submitted by the various agencies and recommended by the mission, are compared in the above table. Except for the airport program which the mission was not able to study, the programs for each sub-sector would represent annual expenditure levels substantially above those of recent years. The railroad and the port authorities would have preferred even larger programs, but for reasons explained herein the mission did not agree writh all aspects of the programs proposed.

6. In analyzing the investment program for transport, the mission observed that investment decisions and Dricine decisions are often unrelated. The Secretariat of Communications and Transport (SCT), which anproves or determines rates and fares on the railways- highw.vs and on internal air services as well as handling charges at the poz'e. does not use transnort nrices 2S 2 deliberate instrnment sf al; ati-n! traffie to whichever medium is the most economical in terms of cost and service. A general uispJeJ..Lull of aLiU!tUhortj in.11 theWlti YdUJ.U[Ir JLal uthel JiJI-UVa.L 0.f investment plans is not helped by tne absence of a clearly defined and centrally cont,rolled tran sport policy. Although the Mini ster of Transporl, acts as a link between the different railways and by his experience, ability and authority brings some uniformity in the railway sector, highway development is not his responsibility other than as the controlling authority over the traffic using the highlways. Tqe presenz system nas not yet resulted in any gross mis-allocation of resources since transport needs, particularly for 'highways, were so great in the earlier stages of economic development. The mission feels however there is a clear need to formulate a transport policy now and to create a more logical system than that in use for the development of transport facilities. The first need is to clarify the future role of the railroad systein within a competitive transDort economy.

ROAD AND RAIL

7. For the best part of the past century the railway has been the :iain- stay of l4exico's transport system. In addition to its basic function of moving goods and people, it has been regarded as an instrument both of nation building and national unification. The character of the rail systeml L,hich evolved was conditioned largely by the neels of an economy oriented -to tile -rd-rdction of prinimary products and mineral ores and, until quite recentl, by the virtual absence of competitive forms of transport. Rail services r7ere established as near as 0ossible to shippers and consignees because of the inadequate and high cost pick-up and delivery services from farm, factory, mine, nill or poCt. As a result, large numbers of closely spaced s call stations and special rail sidings were built.

8. «During the -)ast two decades, however, the rapid growth in manufac- tirin- aon. service indlustries lhas created a new demand for soecialized and rast transport services and for flexible shipping schedules geared to the needs of shippers and consignees rather than the needs of the carriers. These growing industries are greatly concerned with production planning, inventory control, and the costs involved in the slow Inovement of high value goods. For this type of freight movement, line-haul rates are out one element in the total cost picture. -he growing emrhasls on transport service--speed, scheduling fre(uency and flexibility, equipment special- ization, quality and dainase control. less stringent packagying requirements, etc.,--has been reinforced by the teniency of new industries to locate themselves at; or near their main market outlets, a fact that generates shorter transport hauls best satisfied by road transport.

9. The problem of distributing goods throughout tne large area of -exico is another factor affecting transport services, Despite the heavy concentration of people in the Federal District and the rapid growth of urbani2atJon in rcePnt ryears, the country's population is fairly widely scattered. Large rural areas are relatively self-supporting but produce crop surplises l'or consLunp ion in [ei9gIiUUFIlIJCu ±ts andU bUUWLVZ1 Since agricultural units are generally snall the transport recuired is often for limited volumnes over short nistazices. Cmjo:tedoods and local manufactures have to be widely distributed, often to areas not served by the railways. 1,1eanwhile, rising urban incomes have stimulated the demand for fresh fruits, vegetables, fish and other perishables and made possible the payments of the higher transport costs involved.

10. As a result of these nef de.nand conditions, which the railways were not organized to meet in terms of plant, equipment or costs, there has beean a great increase in f'or-hire contract and orivate trucking. Technological advances in ttie form of ziiesel power, trailers, containers, lighter construction mnaterials, etc., as well as improvements in the length and quality of the highway systern, have macde possible increasing amounts of transportation over the hi2hways. The growth of alternative transport, however, las not been limited to trucking. Significant progress in the fields of civil aviation, motor-bus operations and the move,nent of bulk oil products by pipelines have all cut into traffic which traditionally would have gone to the railways.

11. The increase in competition has produced an exjpanded, more efficient and more bDroadly based transport structure. One of the more obvious consequences is that since ,roducers are no longer forced to adapt their oDeration to a ri_id transport network, a diversificatiorn in the location industry, iwhich the inflexibility inherent in railway location had tended to inhibit, has been brought about.

12. For the r--tilways tie-iselves, the consequences of increased competition have not been entirely adverse. T''hey 'have been stimulated to introduce betLer equipment, modern signalling s-rstems, diesel locomotives, more efficient terninals, new track mainternance techniques and other advanices in rail-ray technolo&r!. In addition to im-rortant track re-laying programs on existing routes, new lirnes have been added to tile system. Most of tihe high-cost, short-distance, less-than-car-load traffic has transferred to road transport with the result tnat the railways have bone an unusually long way in establishine a position in whicih the bulk of their traffic has some, or all, of the following characteristics:

a. heavy density train-loads composed especially of larce volume, bulk, heav-y weight ner unit of snace. maachine loaded nroduncts moving over long distances;

b. goods for which speed of movement and frequency of delivery are not GritiM rC1,

c. goodnn fnr ihicih crlos super.vjision of' (l1quality7 andA dition is not essential;

d. goods for which road transport is regaided as the potentially

more haza dous form of public tvar,spor;LI U, e. goods for which clairi.s for 'loss, theft, lage or delay are unlikely to be significant.

13. By contrast shippers' preferences for trucking have revealed themselves in shipiments-which milay be classi fieu as foiiws:

a. goods moving in s-mall volumes o-ver s1ort hauls;

b. goods requiring special service conditions aiu supervvsIoio irrespective of length of haul, especially when of high value;

c. goods for which time and its associated costs are sigriifi- cant;

d. goods moving over low density traffic routes.

14. Over the period 1951-61 an increase in Gross National Product (at constant prices) of 82 percent has been accompanied by a 44 percent increase in freight ton-kilometers on the railwrays and a 140 percent increase in the number of trucks and buses. Unfortunately no up-to-date information is available to assess accurately the changing composition of rail and road transport in the total freight movement. A semi-official estimate is that road transport performed 11 percent of the total land transport freight ton-kilometers in 1948 and that b-r 1956, vihen the total traffic had increased 130 percent, its share had risen to 46 percent of the total ton-kilometers. It should be noted that ton-kilometer figures tend to understate the value contribution of trucking in the total transport system in that, as we have noted, trucking thrives on the carriage of high value commodities such as manufactured goods, pharmaceutical products, perishable foodstuffs, etc., and general pick-up and delivery services rather than the generally low value bulk commodities which are important for the railways. A traffic census taken in 1960, which has not yet been processed, is expected to confirm a continued increase in the relative importance of road transport.

15. The diversion of passenger traffic from the railway has been much more decisive due to risin inncomes leadin to greater nrivate car ownership and more air travel; the greater frequency of service, flp-hilitv of operations and general conveniPnce of hibutrqnsport; and the impact of highway construction and iLmprovement. Cne estimate is that the relal-.ive percent.ages of passen'rs travelin by hus (Ppcid eral concessionaires), by railway and by air changed from 77.3 percent, 22 percent anrd n.7 …percnt…r…P…cnl.el in 1950 to p6.2 percent, 12 7 percent and 1.1 percent in 1959 'T;h- IA, -;-- 71- P 4 - D 4 - '

i>i.hegeographical dist±r±ibuu-LU1 Uo i cols IiaLUal resourcees ndf population is a main determinant of the volume, method and pattern of its traff ic movements. The largest concentration oI population--reflecting both demand and economic activity--is in the relatively small central por- 1 L s Lmt * n S 4 1 . i7 tion of the country. rnese Central Stames=, cover only 14 percent of the area of the country but contain 49 percent of the total population and 50 percent of the countrys "transportation" industries. 'This concentration of population and manufacturing industry generates a large inward movement of local and imported foodstuffs, raw materials and consumer goads and an out-flow of manufactures to all parts of the country as well as for export. irrespective of the means of transport, 56 percent of the volume and 70 percent of the value of all imports in 1961 were destined for these central states, while 34 percent of both the value and volume of exports originated from them. Most of this traffic is over distances which clearly favor hauling by rail. The average length of haul for the Nacionales de MIexico, 450 kms.,reflects this factor.

17. 'Much of this traffic consists of bulk goods most conveniently shipped by rail, especially to destinations that are specific and limited. Large volumes of raineral ores, concentrates, and metal bars or ingots, which ac.- count for 20 percent of the total rail tonnages carried, either crossed the U,S. border by rail or moved to the ports for export to the U.S. and elsewhere. There are large internal movements by rail to and from the steel mills at Monclova and I'onterrey. Petroleum products are another group which are shipped by rail in the early distribution stage, with fuel oil in particular being unaffected by the extension of the pipeline net-- work or by road transport. Limestone, lime and gypsum move relatively short distances but in large volume to cement factories. Building stone and sand moving in bulk to widely scattered construction sites, and products such as salt, sulphur (from the Gulf coast area) and kaolin are "traditional" railway traffic not seriously affected by road competition except for small shipments over short hauls. A number of bulky industrial products such as steel bars are also handled in volume by the railways.

18. Most of this freight traf,fic is moved in Full Car Loads. In 1952, total Less Than Car Load (LCL )2/ traffic was only 19 percernt of all com-- mercial rail traffic and by 1961 it had fallen to 0.6 percent.

1/ Aguascalientes, Guanajato, Hildalgo, Jalisco, M4exico, Iichacau, I4orelos, -Fuebla, Qlueretaro, Tlaxcala and the Federal District

2/ LCL shipments are made up of goods from more than one shipper. Full Car Load (FCL) means one shipper of goods rather than the cars themselves being full: the average FCL load of the Nacionales de M4exico in 1961 was 36.8 tons with freight cars having a capacity of 50 tons. -7-

1L9. AsP pv Iu L.Y potedLI uto, , thU.,IJ.a U IrUiJ. t ricini reflects economic forces 4nich have worked in favor of shorter rather tinan lonoer l1auL i oeieV-i'slI . aE I1 biUteImoU1eC)t1ie dULL U.Lol ; IU1V AL 0 J IV V.L.GU %A. LI,VU -1. satisfy newi demands for which the rail.;ay is not alwMays suited or located to eal wilth and f'or which they have been eithter unwilling or unable to meet. It is worth notin- that LCL rail traffic usually requircs four more handlings t'h-an by ciurect truck shipment lhen'Doved through freighUt sheds or tro nore handlin,s if shipped through team tracks. For these reasons thre bulk oi LCL tralff`!c rnas been ,ivnflup (or taken awJay), excej ) for very long hauls to and from points on the railway that are inadeqlately served b- trucking.

20. Tro neet tiese new ann exjpanding needs there has been a iarge increase in1 the nu L_,er of trucks registered (in thousands):

Of.icial "For Hire" Private, etc. Total

1952 3 13 139 155 1960 4 24 265 293

21. -Jhile the number of common ccrrier (for nire) trucks and "private" (contract, special service and own-business) truci:s have doubled in numbers, the important featur: is that the "private" group is tenfold greater than the coimmon carriers. (One effect of this, as will be discussed elsewhere in the report, is to re-cler almost imipossible control over highway transport Prices.)

22. there is r.o dollbt that truclks have been extending their long-haul business. l-atever the definition of "lon--haul" it seems that trucks, b- reason of their speed and flexibility, are increasing their average inter-city traffic journey lengths. In some cases they are specializing in hauls in excess of 800 kms. to and from the United States. This development of specialized long-haul trucking is priinarily a consequence of road improve-Ments and technical factors such as increased pay loads and tle introduction of powerful diesel tractor units (but which are still relatively small in number). Some major slippers have hedged against possible rail strikes or breakdowns by g-iving truckers at least part of their regular frei;ht shipments. And, once goods have been loaded on to trucks, there is a tendency to send them over longer distance. This does not however indicate a fundamental change in the role of trne tuo modes of transport, but rather a change in thle character of particular transport demiiands.

23. The r.lative role of trucking and rail naulinw can be seen indirectly fromTi the distribution of freight revenue earned byr the Nacionales de i4exico railway from traffic hauled var-,rign distances: 0

Average Distance Hauled Pkn.)Percent of Freight revenue Under 200 7.2 200 - 299 - 300 - 500 27.4 500 - 700 32.7 700 - 900 21.7 Over 900 11.0

24. From the figures it may be concluaded that trucking makes its strongest L-^oact at average lhaulage distances below 3CO kms. The railway has practically no traffic in the 200-299 km. average haulage range. Tne under-200 km. figure reflects the railway's large short-haul business in bulk shipments of sugar cane, coal, limestone, sulphur, ana' cement--it took 26.8 percent of total tonnages hauled to produce tne '7.2 percent of revenue earned at these short distances. Even in the 300-500 km. range, which accounted for 27.4 percent of the railway's revenue, the railway concentrates principally on products unsuitable for trucking, e.g., fuel oil, maize, fertilizers, gasoline and diesel fuel, coke and salt. It would appear, therefore, that trucking has an operating range extending toward the 500 km. mark for other than bulky,low-value products moving in large volumes.

Spheres of Oneration

25. The tr-affic oatterns described above broadly indicate that trucking has an unouestioned competitive advartage in short-to mnedium-haul transport where thle ecoromies of hardlin-r small shinments in short tine intervals come into play. At the other extreme, a clear advantage for railways is int1icat,eP in traffic for -hic'ih their lower 1-ne-haii1 costs offset the costs and delay-s in assebling, switching, classifying cars, the stopping of wholep t.raln loads tnto take nff nnon or fwn cnrs mt irtnt.Prmpeiat.e sttionns on terminal to terminal hauls,etc. 3etween these ill-defined extremes relative comnetitive advantages are less clear.

Z6= TnfortusnatelPv there are .everp prp cal limitationn to detailed cost comparisons that would def_ne more precisely the spheres of road and ra~il transport. Truckirng us~1ually p~roide a lrger buindle. of siervics t.han rail transport. The value of such services, which for certain classes of traffic are important, should be deducted from truck costs before compar1n-g line-haul costs for particular types of traffic. It was not possible for the mission to obtain a breakdown. onft 1-k ncE cost into poick-andi de livery, dock handling and line hauling components. Comparisons of average ton=kilometer costs are also awkward because they are derived from the par ticular costs of dozens of different commodities each of which has a A-;4 7t77t141 ereA;nt va4e weht lo.aLiy fr._Ag.; 14ty pr .'s.A1; -1 4 -1 4ly an other. u XJ.L XI V Ut4 4vdLUI U dU. d.UL.LALUJ ±J. LJUyjJ ±OIL. J AL ^ 1 I. characteristics. _ 9 _

AV=J.nGE-TOTAL COSTS PEP TOii-KM'. FOR FRE IC-FT ThAFFICGa 1YACIONALES DEiI'LICO (1961)

Centavos -er,ton-km. at: ______10kM. 100k>m. 450km..P/ 1,000km. 1,500km.

FCLJ/ traffic received at and delivered to raill2freight sheds.

Car loaded to:

50 tons, 38.6 12.4 10.1 9.8 9.7 36.8 tons2C 50.5 24.9 11.8 11.3 11.2 20 tons 88.5 30.3 17.3 16.4 16.2

LCLe/ traffic recei-ved at and delivered to railwrayfreight sheds.

Car loaded to:

30 tons 752.6 88.0 30-5 21.5 19.0 20 tons 780.9 94.4 35.0 25.7 23.2 10 tons 865.8 113.8 kB.7 38-.6 35.8

LCL traffic includinm pick-up and delivery by railway road services

Car loaded to:

,o tons 1-078iLr = 474 30 8 25.2 20 tons 1,706.7 187.0 51.9 3L.9 29.4 10 tons 1;.791-6 20,.A 4 47=9 l2=0

a/ Por assumptions, see text.

b/ Average distance of haulage in 1961.

/ Full Car Load (see footnote, page 6).

d/ Average tomnage hauled in 1961.

e/ Less Than Car Load (see footnote, page 6). 27.* However, av,erage +4' apr'nvi can provide a rough first measure of competitive advantage. The mission has made accordingly the following an.alysis costs to try to define as rea-- sonably as possible the relative spheres of rail and road transport in .exico today. 28. The mission's analysis of operating costs on the Nacionales de Mexico, in the table on the preceding page, shows the ton-km. for hauls of varying distances from 10 km. to 1,500 km. It was assumed that freight traffic bears the full burden of fixed charges, the entire non-variable operating costs (e.g., supervision, accounting, etc.), as well as that portion of variable costs (workshops, running sheds, traffic staff and track maintenance etc.) for which passenger revenue is unable to make a full contribution.

29. The ton-kilometer figures in the table, when paired with comparable truck costs, provide one basis for calculating the approximate distances at which rail transport becomes cheaper than road transnort in M4exico. For rail transport as such, the figures show that ton-kilometer costs fall sharnlv with inereases in weight loaded ner e-ar ;md distances hauled and that costs for LCL traffic costs are noticeably greater than for FCL traffi. t A.1 I d istanees, The auver2g totaIl cot* hu ril--hased on the 1961 - ~~~~~~~~~-.----c_,C_- -- - I - - - -- _I_ average of 36.8 tons per car hauled 450 km.--is 11.8 centavos per ton-km. 30. Calculation of comparable costs for trucking operations was more difficult. Vehicle operating cost figures alone do not represent the true costs to the economy of trucking operations because they do not cover the full cost of providing, maintaining and supervising highways. The mission carried out an analysis of road transport in which both vehicle and highway costs were included to arrive at figures comnarable to the railroad costs. From official and private sources information was obtained on the costs of onprating trUlkS in Ivesxio- These are shown in the tahle below. AVERAGE TOTAL OPERATING COSTS BY TRUCKS Total Costs per Total Costs per K_n . a, 1on-m.n . Net of With Net of With Taxes Taxes Taxes Taxes Vehicle Type and Size (pesos) (centavos) Truck-gasoline units - 7 ton 1.12 1.40 21 27

Tr-uck-ga-soline r,itsI.L U - 06- 48tonyul,tI _ 1.3IL..) I 1.71±. (.L 4)I23) - Tractor-trailer diesel - 11 ton 1.44 1.80 17 22 .L.Factor-trailler±.l__ diesel±~J~.t~ - -124I ton-L1,011 -L.72±. ( 2.1.±) 19 21-"- Tractor-trailer diesel - 18-20 ton 1.60 2.00 11 14

a/ Assuming 100 percent average load factor. t/ Assuming the 75 percent average load factor. - 11 -

in addition, a set of firures supplied to the Bank in connection with a recent highway loan to Mexico gave a further indication of vehicle operating cost. For an assumed truck fleet made up 90 percent of 7-10 ton trlucks--half gasoline and half diesel powered--and 10 percent of 18-22 tsn truck-trailer combinations, the average vehicle cost per km., net of taxes, was Ps 1.67. This is equivalent to a weig-hted operating cost of 23 centavos per tor-km. for the same assumed load factor. Taking into consideration the cost of highway transport to the economy, over and above vehicle operating costsl/, the mission arrived at which it believes to be reasonable estimates of the average total real cost for road transport in Mexico:

Centavos Vehicle Type per ton-km.2/

Truck-trai-ler diesel powered comr~binations: 18-22 ton lbads 15 Truck-trailer diesel powered combinations: 11-12 ton loads 20 Single uriit diesel powered trucks: 8-10 ton loads 25 Single-unit gasoline powered trucks! 5- 7 ton I oras 30

31. Althou-h the mission was unable to obtain information as to the distribution of truck size in Mexico, observation sugests that the ma- ijrity. of' intepr-cityir t-cking takes l-^e by vehicless ln the 7-10 ton =1 -- - J - _ -15 1- - , ------1~ -L~ -_ U.-LI load capacity range. Therefore, average total costs (vehicle operation, depreciation, etc., higthway am-ortization, maintenance and superv-ision) of road transport are on the order of 25-30 centavos per ton-km. By contrast, as we have seen, averaae total costs by rail for existing traffic are approximately 12 centavos per ton-km.

32. On the basis of the fore-oing cost information, the mission has calculated the anproxiimate distancies at which rail tratnsport beccmes cheaper than road transport (see table on following' page). The results offer a veriLication of t!e basic premise that road and rail transport in Mexico have established themselves into rational spheres of operations. There are a few exceptions to the rule, of course, but they do not at present produce gross distortions in the transport system. The mission believes that three conclusions can be drawn from the accompanying tables:

i. That in all but exceptional circumstances, the shipment of L'L traffic, especially tw,hen involving pick-up and deliverv by road, is more economicai by road.

1/ See discussion in the Road fransport section.

2/ These may be slightly understated because of the subsidy element in the diesel oil prices. 1hlrat vw-,ere genera"l traff+J>c can be s1hip ped in. f, -1 car loadLnns of 30 tons or over, rail transport is the more economic means; 3. That where the traffic consists of Full Car Loads of 20 or less tons, the competitive distance is influenced by the size of truck involved. Examples of rail traffic in this category are grocer- i.es (20 ton loads), canned goods (18 ton loads), citrus fruit (1L ton loads) and cattle (13 ton loads), all of which are hauled over 60,' ! 'J)'<, '_-Ane(¢1 lue) APFROXII4ATE DISTANCES AT WIHICH RAIL TRANSPORT BECO.4ES CHEAPER THAN ROAD TRANSPORT IN TEXICO (kilormeters) In competition with trucks of: 18 - 22 11 - 12 8 - 10 5 - 7 ton ton ton ton FCL received at and delivered to railway freight sheds.

uar Jl e.,oato: 50 tons 25 20 15 15 40 uons J321 36.8 tons 50 30 25 15 30n 4tons 75 I+O 2,t 2-0 20 tons 200 90 50 40

-L0 bOns - _/ 0o -1000 200 12,

LCfT. received at and deliArvered to railway Creight sheds, Car loade(d to: 30 tons 1250 650 450 350 20 tons - 800 550 400 10 tons - 1250 700 LCL traffic received and delivered by road from goods owners' prenises

Car loaded *to: 30 tons mI100 nn 20 tons - 1250 900 10 tons --- 1'iO

a/ Equal at all distances.

]o-aLce; l4'"ssion es5t'iTuCtes. - 13 -

33. IJle 'a"le, reaffim. LIithe IILL.o ! JjUUdgi, roa'LrVdUIXS)tranpr has captured practically all LCL traffic and a large proportion of 10 ton FCL urafl c uver al.l Uisuarces. Iuj i ,uu1 ofthe Uspitfat hIaU th~e radlJ- ways have e price advantage in the "grey area'i of transport competition that is not reflecUtu in aveag cs u %i,LUch4Lies. ofI the traffic that i "impartial" to rail or road, the railways can resort to marginal cost pricin; vg Lby ubsing th1eigr chlarges onLLy on the -extrdCoubt iLVUolveU 1i I!LUV ing additional traffic on trains. At short distances the variable cost factc:r works strongly in the railway's favor. Trucking costs, by and large, var;y directly with the amount of work done because of the large volume of LCL traffic, with its nwnerous stops and manual handlings for ick-up wiu ue- livery dock services, and of the flexibility and extra services provided on other types of traffic. Tne evidence avaiiaoie suggests that rail costs would be substantially higher than truck costs on much of the traffic which in now moving by road.

34. The mission believes that the problems of future traansport in Miexico will not be concerned with the rationing out of scarce freight traffic among eager and hungry carriers, but rather to ensure that rational economic investments are made in transport facilities of all kinds to keep pace with demand. Large and continuing investments are being made in industry and agriculture which will require the greater transport of both inputs and outpiuts. The nation's growing manufacturing and service industries, with their demand for quick turnovers of inventories, flexibility orf operations, specialized services and short-to medium-distance hauls, are best satisfied by road transport. In view of this and of the mission's finding that highway users as a5 group pay for the full cost of highway services through taxes, etc.,l/ it may be concluded that road transport has a very clear role to play in the total transport picture.

35. The railvray system has a large and growing volume of traffic with loading and haulaae distance characteristics suitable both technically and economically for rail transport. Of the 30 million tons moved annually by rail some 70-75 percent is bulk traffic with value, weight and loading characteristics which make it unlikely to move to the highways if rational freight rate policies and practices are adopted and if costs can be kept down. At most, the present composition of railway freight traffic for which trucking may be regarded as a potential competitor appears to be some one-quarter of total rail car loadings. Further increases in rail traffic in itself should make possible a reduction in real total costs per ton-kilometer as a larger number of traffic units is spread over a given amount of fixed costs. But even at present costs, the bulk of the investment now installed in the railways is fully justified by the advantages which railway transport confers. While the users of the railway freight services are not now charged rates which lead to an adequate return on the

1/ See discussion 'in hoad Transnort. - 14 -

invest.merlt needed to perform such services and to meet the loss on passenger services, the mission is confident, on the basis of the analysis contained herein, that economic charges are feasible without divert- ing any substantial volume of traffic to trucks.

36. In the mission's opinion there is a safe and assumed place for both forms of transport in Mexico and a prima facie case is thus made for the retention, improvement and expansion of both systems.

Public Policy and the Railways

37. It should not be assumed that because the railways have a demon- strable economic role to fulfill, or because they have a large proportion of "captive" traffic, they may not become a financial millstone around the nation's neck. As a legacy of tradition, law and past public policy, the railways operate under national obligations and operational limitations that are a serious drain on their resources. Acceptable and necessary as the restrictions may have been in a monopolistic era, much of their reason for being has been destroyed through the impact of transport technology. So long as Mexican public policy by apparently dealing with railway operations in isolation ignores this--and does not move toward their removal--then rail users, or the general taxpayers, will be burdened with the higher but avoidable transport costs involved.

38. The limiting factors in railway operations include such things as unremunerative passenger services, unprofitable branch lines and stations, and imperfect tariff policies. The full consequences of these factors, and the mission's recommendations to improve the situation, are covered more fully in the discussion of the railroad program. At this point, the problems of the railways are discussed on the more generra level of pubnlc policy.

39. In the mission's opinion, for Mexico's railways to operate as viable financial institutions they will have to concentrate on nperforrwinp those transport functions in which they have cost and service advantages. In broad terms, as we have demonstrated. these for freight are hea-y loadings involving full train movements with few stops and, where possible, long hauls: for passenger services, express movements on heavy density traffic routes. The Nacionales de Mexico, by far the country's most important railway comrany, has moved close to these "ideal" conditions in its freight traffic. As a result, its freight service operations are probably viable cnd produce a return on that-part of cawitahl which could be solely attrib to these operations, but unfortunately passenger services are unable to mnake any contribution towards the common costs of passenger and freight investments which, in consequence, are mainly borne by freight services alone, 40. Passenger services, taken as a whole, are clearly uneconomic. Forces similar to those which have led to the spread of truck operations have stimuated '1ternaf.,Xtie ,,,ethods of trans,Jotng people. The mn.4+trit of Mexican travelers clearly consider that the speed and service advantage ofPue 1onsi-ort -- A t-_A 4 assre 4wo{h +1n_m,qh --- - charged. As a result, there has been only a marginal increase in total ra.L± ralpasser,gerL JUUIE1IUYjourneys O overthepasVV-.L- Ukil- I.,ZJUt-zUCtUt7.deade CoupeitinfrpasneUUJU.LLJI .L- business for buses, airlines, for hire and private passenger cars has made rail passenger srcr u'- c --latractiv except for long journeys, or for special groups and special purposes.

41. In face of the superior specialized services of bus and truck transport, many branch lines in iviexico no longer perform econuiiucally the functions for which they were built. While the railways have tried with some success to reduce unprofitable services and to abandon uneconomic branch lines, they have been severely limited by the Government's reluctance to act on the economic logic of closing those branch lines which probably never carried sufficient traffic to justify themselves, and now have no prospects of doing so. As the mission shows later in its report, there are some 2,600 kms. of such lines which probably could be closed with advantage to the finances of the Nacionales de Mexico. This mission suggests that it would not be a case of the railway abandoning the community or service but rather that the communities have already abandoned the railway for highway services--making use of railway services only when it is inconvenient to ship goods or travel by alternative means of transport.

42. That the new competitive situation has made it impossible for railway finances to carry the great burden of passenger losses incurred is reflected in the growing subsidy payments made by Government. It is unlikely, however, that the early abandonment of unprofitable services and the increased passenger fares, which the mission recommends, will make the remaining services profitable. Government support will still be required. But if needed reforms are carried out, the burden of losses, now being borne in part by the general public and to a lesser degree by shippers of high-value goods, will be reduced. The public, by and large, has indicated its preference for other modes of travel. Therefore, the mission recommends that a planned program of line and service withdrawals should be designed to avoid undue hardships and dislocations and should provide for clear exceptions if no alternative facilities exist or cannot be provided cheaply and satisfactorily. The mission envisages this program being carried out over, say, a 10-year period. The losses on such passenger services retained during the transition period should, in the mission's opinion, be borne by the Government. Where rail passenger services are kept in operation due to the lack of alternative forms of land transport. or where Darticular industries continue to be served bv rail so as to avoid relocation expenditures or for other legitimate reasons, the mission believes the noRtA involved should he the resnonsibilitv of the nation. '3 A-n ornts-- ce ofP revenue Iost tok ra-avay-the 11 reulsProm the carrying of certain products at very low rates. WThile the mission flo,Md no clecar officilI'sta4te,,,er, 4to the effPect tht ra ovd o n ternal markets, or mineral ores and concentrates destined for export, or coal", cokz-e and ironA oreV for.- theI "V&LexCLAn stelV- _irdustry.L are UV UV specif=.L ically subsidized, the actual rates charged suggests that this is in fact the case. Thue irssion recomen,ds that these subsidies should be specilf- ically identified in the railway accounts and should be borne by the Gov- erruimel. If for reasoris of pubLiL poliy these lWo -L.Lreigl I.ate a considered vital to the economy in general, or to particular interest groups, they shILo 'd not be hide ---in 41---th geea -z_ fHncia- 1A-4------deict grOUJJD,UuI ~i10U.LLL I u IC;) -of'-.IiLu tULe .LLI Wit:i: 8VLIl.LdC1L ±JIdLULdJ 1±U.LJL'.-, UL the railways which are met by the Government but clearly identified as 4 4 4 +4 ,, + ,a- ac' - % -4 c 4 + a-.,-.-.n4 -P-4 - -,,,,cP,- - - - -4 4 a y -i. - -JAI Lifl.. C± VhJ.~L4..~. 0~S.L4&0 vI Qye.V .. L. 5±'.~k'6,Fo '_ QJ - L-, poses. There are further, though less important, statutory obligations 4 an thAe r ai l1'W w,h.h ke -1 e, ,_r P4n. : --41 -. 44-4-a 1,-- her LIII '.1)1'. 4. a.I.IVva 'WMICIv I HI D ViI.CI' . ± ±WL..L2..1 ± LJDJ.LWIn appeau WIVC.V. Vi L(£)- it really is. For example, Government payments for the carriage of mail are somne one-thirtieth of the total rail costs involved in providing the service. There is also the provision of free or cheap transport for spec--

±ifi rneruers ofsoie-

I I 1 !1 _ * i. : __.1 tt1a_ _I__ , - I 1 -- . . : v _ _ 44. Villl± ILU 1S nvot -ile IIllSS f L3 TasK to juage sucn naulonaL pUjLJLoy decisions, it believes that deficits which are the direct result of such obligations should be clearly identified as such, and borne by the community as a whole. This principle is basic to a long-run solution to the financial deficits which beset the railways. Tne mission is less concerned with working out a formula by which this can be implemented than with pre-- senting the factual situation in order to dispel the misunderstanding which, it believes, incorrectly surrounds the role of rail transport in .lexico. The railways are a valuable asset with an important role to play in the country's expanding economy, but it is essential that further investment in them should go hand-in-hand with new policy measures appropriate to the new transport environment.

THE RAILItTAY PROGRAM

45. In 1961 there were eleven railways in Mexico which offered public services over approximately 19,500 route-kms. The dominance of the Facionales de IMIexico, which operated 70 percent of the total route-kilometers, and the relative unimportance of the privately owned and operated railways, can be seen from the table below. The private railways are sub- sidiaries of U.S. railroads or their holding companies, and the mission was not asked to comment on their independent investment programs.

hle two largest railways, the Nacionales de M-lexico and Del Pacifico, are semi-autonomous bodies which, at the moment, are run by the same Gen- eral Manager (appointed by the President of the Republic) and by Boards of Directors, representing various Secretariats, the Chamber of Commerce and the 'Syndicate of Railway Workers. Excepting the Coahuila y Zacatecas, now run by a gov-ernnent-appointed admuni.strator, tne other pUD1iC railways are run by General Managers appointed by the IEinister of Transport, who himself serves as Board President of all the government railroads including the Nacionales and Del Pacifico. The General Managers control day-to-day operations of the railways under the overriding authority of the Secretariat of Communications and Transport (SCT).

ROUTE KIL0PIETERS IN PUBLIC USE:/ (1961)

Railway Main Lines Branch Lines Total

Nacionales de iMexico 10,009 2,588!/ 13,687

Del Pacifico 1,764 384 2,1148

SCT Railways (total) 3,187 214 3,401

Coahuila y Zacatecas 126 36 162 Chihauhau al Pacifico 1,268 4 1,272 Sonora - Baja California 522 - 522 Sureste 734 7 741 Unidos de YZucatan 537 167 704

Private Railwamys (total) 241 _ 26

Inter-California 16 - 16 Nacozari 123 _ 123 Occidental de M4exico 31 _ 31 Tijuana y Tecate 71 71

GRAND TOTAL 15,291 4.186 19.47

a/ Excludes Mlexicano al Facifico (34 km.) which has no public services. b/ Estimate.

Source: SCT

47, The development of such an extensive railway network did not take place overnight. Foreign private capital pioneered the construction and development of railways in MIexico during the 19th and early 20th centuries. Encouraged by liberal concession rights, some of which have not yet expired, a large part of the present network reflects the aims and purposes of this private initiative and its limitations. Shortages of funds led to circuitous RAILWAYS

0 0 s t Nooclei J ~~~~~~~~CdJ.-,(! F 75S X t ' J< K MEXIICO

X WN ol> He,,mosll w D / cd ct 1962

MAZATLAI>, 9 s)\

* tCVn kL rl v X,1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~MERI/

>2 IDA_5 O~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~APc < ,5 )> ( ) G u A 3 4- >)-9 > EDCFILCA CoAMPECHe

_ ~ ~~ ~ ~~ ~~ ~~ ~~~~~ .- _

19RO- 1164 MAY 19E3 alignments (to avoid physical obstacles), steep grades and gauge differences on the different companies' lines.

48. Tne earliest ventures tried to reach across Mexico to the Pacific Coast with the object of shortening the sea routes between Europe, the eastern U.S. seaboard, the Far East and the west coast of North America. The major physical obstacles encountered, the construction of trans- continental railways in North America,and the opening of the Suez Canal in 1869 ended most of the interest in lateral development, especially on the part of British capital.

49. From the 1870's until the Nexican Revolution of 1910 increasing amounts of North Amnerican capital went into railway construction partly to develop mineral and timber resources for export; partly to give easier access to markets in western South America and the Far East for the growing U.S. industries; and partly for geopolitical reasons. As a result of this second more sustained development effort, which ended with the 1910 Mexican Revolution, the opening of the Panama Canal and the outbreak of war in 1914, the existing important north-souith routes were created. Al- though by the mid-1920's most of the damage to tracks, buildings and equipment caused by the revolutionary conditions of the country had been repaired or rehabilitated, foreign private capital no longer had a great interest in railway development in Mexico or elsewhere.

50. From the 1930's the llexican Government has played a positive role in railwnv c3evelor.ment. The GovernmentG93 initiated a program of new railway construction vrith its own resources which has resulted in the r presnt. Sonra-Pa Cifor- n anri e railurnvn nni the comnlption in 1961 of the potentially important link across the mountains to the Pacific coast betvree the Cr.iiahua al Pacifico anrd Del Pacifico railways. In 1937, the Goverrnment took over the Nacionales de Mlexico railwfay, then a privately ov,ned f or_ei COmp-r wh J ch had been bl 1ro+ up f . a ser es of rr nerge of ~J VlJAt ' JjVAAV , - ±4.-- .A± 1 Li Li- -4..L L±kJ -. Lfi-. - - _ C,- _ previously independent companies. Control and operation of this railway w-^as transferred to the Railway Wiorkp,'s Sm..icat o~~pft.he Mexic2i 1ai1 ny in 1938, but returned to the Federal Government in 1941. The powerful S7V..dir'n+c t *iis strilQ+ 11 by tolc nren o the rarrwaysI Board of Directors.

51. In 1942, with the assistance of a U.S. railway mission, the 14exican Goverrent1,begn theparal ~ ' e 1ailat4ion of th-s prwts of the Nacionales de iMexico system deemed most important on the grounds of military strategy

an nt1 .- n" se ur itA 4 1-+ ;+ |?(;t P- thrhbh,.-s fi?lt-4t +1, _A Ss-t ; e 0s a u...kJA±a... Q ,L 4.. vJ . LJJ. w v sUC10, Lfvv l W.0V vst E o 'v.± .1 .W±S . b .. V ance of an Exim-Bank loan, the Government has continued the task of re-

forcing eTbankments, modernizing workshops and engine sheds, improving addiLtUioLLZAtdU.LUJlrolling stock.: dUL.L4kJJIi additional rolling stock. 52. P-urersiUeIIL -LdL)or UifITIClLL1e on tIhe prLvate U.,.-o-wneU Pacifico railway led in 1947 to intervention by the Mexican Government, which operated the line until 1957 when it was finally purchased fer US$ 12 million. During the 1950's a major reconstruction and rehabilitation of the railway line and its equipment was carried out with the assistance of loan funds provided by the Exim-2ank, a private IJ.S. source and the IBED (USw 01 million).

53. Since the i930Ts in addition to new construction the Government has acquired controlling financial interests in the other main railways, so that it is now in direct control of 98 percent of the total route- kilometers in the country. Through the Secretariat of Communications and Transport (SCT) it controls safety, engineering standards and the rates and fares of all railways in the country. Ir other words, through these means and through the control of investment the Governmcnt can control railwiay operations and policies.

Recommended Investment Program, 1963-65

54. Railway maintenance and capital investment programs have to be submitted to the Secretariat of the Presidency for scrutiny and approval. Although the programs of the Macionales de ?4exico and the Pacifico are made known to the SCT, they are in effect direct submissions, whereas those for the other railways have to go through a screening process first by the SCT before their final submission. The programs reviewed in the mission's report have not been through this screening process nor have they been approved by the Secretariat of the Presidency. They are independent proposals reflecting only the views of the particular railways, and the Secretariat of Public Works, as to what they consider essential for the maintenance, improvement and further development during the period under consideration. Some items by their technical nature inevitably provide capacity to handle traffic beyond that envisaged in 1965.

55. The total program presented by the railways to continue the process of modernization and improving technological efficiency, and by the Sec- retariat of Public Works for new construction is contrasted in the following table with actual expenditures 1960-62 and with the mission's rec- oxmmendations for 1963-65. As compared with the recent past the railway authorities envisaged a three-fold increase in expenditures, whereas the mission's recommendations would necessitate only a 60 percent increase in total expenditures. In arriving at its recommended expenditures, the mia- sion examined the eauipment orogram of the railroads to ensure that sufficient capacity would be available to move existing traffic with reserves anmle enough to satisfv immediately forseeable needs. The mission took into consideration the place of rail transport in the total transport system and also closely scrP.tinized each progrnm so 2S to identify7 those projects which, by their technical nature, are necessary routine investments fa r lhemaintenance of operating efficiency and safety, and those which appear likely to reduce costs or increase revenues. - 20 -

DWE1SUIE4T PROGRHC FCR THE RAJAIDAYS, i963-65 (millions of pesos)

1963-65 1960-62 Program miission Reconm- Actual Submitted mendations

Rails and fittings 510 1,308 680 Gther track works 299 1,610 1,019 Locomotives 340 571 495 Freight cars 500 602 257 Fassenger cars 21 1,146 267 Telecommunications and signals 25 490 275 Buildings and terminals 468 825 577 Miscellaneous 103 588 226

Total for existing lines 2,266 7,140 3,796

New construction 300 485 305

Total railway investment 2,566 7,625 4,101

56. In arriving at its finally recommended programs the mission also toolc into account the fact that some projects have already been approved by the Government, with funds budgeted in some cases. For most of the investments such as housing, hospitals, camp cars, etc., for which the economic benefits are difficult to aiuantif'v but which form part of the Government's broader social service programs, the mission has accepted t.he nronosed exnenditures.

57. Tl mission would poirt out that only in exceptional cases ha feasibility studies been made or detailed evidence presented as to the economir nl o financia l IusiizAfi em+tio for thea r.nann.n"novecs presented. However, from such details as were given, from statistical analyses of operating conditions. from discussions with the authoriti s rennonsible and from physical inspection of a large part of the railwiay network, the mission h9 made inudgments as to those projects which stand out clerly as technically or economically necessary and those projects which do not arpnogr iiiJfi alel in t-erms-nQ of -esvn$. needs o-r r'ilrl ,dc~bavie n-irM"A ,hymr proved performance and better use of the existing assets.

58. Because of the dominance of the Nacionales and Del Pacifico, most of the discussion of investmnet requirements, as well as operational problems and traffic trends, is in the terms of these two railways. This *-s not to overlook, the JmJn.0ortWnc_e of t"he ot.h~er rail,ways w-hich., tollir tents and purposes, stand in the position of branch lines to the twro main systmls. rrle¼ y) s-os of.T- P the- NacA-4nale___L deA ac -- t P- 1 per- -ent of the total submitted program and 77 percent of the mission's final recom- mendavi.ons for ivESuiuau iu e&jstinS,1 r-wailys. - 21 -

59. Large reductions are recommended in somie parts of the total program on the basis of timing. For example, the necessity for a program of main line track re-laying is unquestioned, but for a variety of reasons the amount of work proposed is considered excessive for the period under review. The mission feels that this part of the program, together with associated works such as the sleeper (tie) replacement program, should be scheduled over a lengthier period than 1963-65. The one other major investment item wihich the mission takes exception to is the Nacionales de IEexico's proposal to introduce centralized traffic control (CTC) over a number of sections. The mission recommends that alternatives should be investigatei thoroughly before such an expensive program is carried out,

60. Large reductions have also been made in such items as passenger cars, rail-cars and passenger station improvements. The general unprofitability of passenger train operations is emphasized throughout this report. The mission's recommendations reflect its assessment of the minimwu needs for the replacement of passenger cars, the opportunity to experiment with special rail-cars, and the necessity to complete justifiable station modifica- tion and improvement projects which are under way and for which funds have been appropriated.

61. In contrast with the cases where reductions have been made, the mission has accepted the Nacionales' request for new diesel locomotives. The clearly demonstrated technical and econormic superiority of diesel traction fully justifies the conversion from steam power on all the railways and, in addition; shouild result in savings by the elLiination of steam locomotive maintenance facilities.

62. Selveral projects for new construction have been accepted as justified by the mrission--particl-arly the E-eranordoba re-aligrument nd a new section of line outside M,"'Iexico City--but the mission has doubts about some aspects of the constraction program. The m-4ission also has recommended a complete rehabilitation of the Sureste's main line and an appropriate amount has been included to cover the first stage of such a program.

Frei.ht Traffic Trends

63. The mission believes that the railways should concentrate on per- forming, those transport functions in -w-hich they, ha-ve cos'u and service advantages. Thus the future of the railways will depend heavily on freight traffic. The railways now moveooni over 30 miillion a'o ually. Growth in- freight movements, however, has lagged behind growth in Gross National Frod- uct (G-NP). Rbailway -rei ght in termis of ton-ki"ometers increased an estimated 44 percent over the decade 1951-61; GI'IP increased 82 percent during the sa-,;e period. hL.. Desnite the difference i n ercentage growth, correlation analysis shows an extremely close relationship between the growth in GNP and an 22 -

Aincrase inl rLal Oa'1±I1bon-1CJIoDiLUeters. ILitas LIu arI1 all LIULEtabi6Ly la.L increment of GNP to produce a given incremental increase in freight Von- kilometers. In 1951, for exWmple 80OC r' of (h-NP-- -ere needed to produce one ton-kilometer. By 1956 this had risen to 9.62 pesos. By 1961, some 11 33 pesos of G-NP were necessanr for each fre.h+ ton=koL meter on the railways. This is but another reflection of an economy in the process~~of_dies Viao and& the success of road transport , '_Ah its spr ccss ~.4.'JA-v e sL"catl on~J, a-A~ tl1 L L 'I.L.Ok I/ Wij uJ4A WJ.~- .A ior flexibility, in increasing its services to such an economy. 65. The major effects of this trend on freight traffic, as well as the major traffic patterns of the countrv; have already been discussed in terms of road-rail competition. In the following analysis, a more detaile!d breakdovn is made of rail traffic Tne Talor attention is paid to 1,acionales de ::exco because of its overriding importance in terms of freight carried anrd in terns of investment, emnerdit3res, and to the semnd-ranking Del 1; acifico. 5,Cecific statistics for each of the nublic railwrays car, be con- _ilted ir thh4 Anendn i Tnbo 66. The increase in freight ton-kilometers on the major railways has been on the following order over the past decade (in millions of ton-kms.J

_L11crease 1952-61 lyz ~~1 1y7- le9/1

Hacionalesa/ 8,419 10,742 11,138 32 Del Pacifico 1,203 1,722 1,882 56

a/ Including freight on F.C. Meiycano, which was merged into the INacionaies in 1961.

67. The main products carried via rail are in the industrial, mineral, agricultural, petroleum, and inorganic groupings, as can be seen from the following table. A prime characteristic of freight traffic, as we have already noted, is the clearly defined nature of rail movements. Geograph-- ical factors as well as product characteristics are major determinants of the traffic pattern. MAIN PRRDUCT GROUPS CA.RRIED BY RAILWAY (1961) u000 tons)

Product Grouc Nacionales Del Pacifico Animals 171 54 Agriculture 4,702 1,376 Forest 325 13 Petroleum 4,098 288 Iydneral 5,798 94 Inorganic 3,600 48 Industrial 6,137 __536 Iotals,4,s31 2,409 - 23 -

68. Tne most clearly defined rail movements in Mexico are to and from the central part of the country, where there is a major concentration of popuiation and manufacturing industry. There is a large inward movement of local and imported foodstuffs, raw materials and consumer goods and an outflow of manufactures to all parts of the country as we-v as for export. Staple foodstuffs, for example, moved by rail in large volumes, particularly wheat moving from the North Pacific to the Central Region at a rate of over a million tons a year (Sec Appendix Table 2).

69. In addition to the major traffic flowis in foodstuffs there are other clearly defined rail movements. For example, large volumes of mineral ores, concentrates, and metal bars or ingots, which account for 20 percent of the total rail tonnages carried, either crossed the U.S. border by rail or moved to the ports for export to the United States and elsewhere. There are large shipments of zinc (97,000 tons) and manganese (11,000 tons) going to Ciudad Juarez; zinc (53,000 tons) to Ojinaga; lead (92,000 tons) and zinc (10,000 tons) to lviatamoros; lead (31,000 tons), zinc (45,000 tons), and iron (89,000 tons) to Nuevo Laredo. Tampico is the destination for large exports of copper (21,000 tons), lead (29,000 tons), zinc (27,000 tons) and iron (90,000 tons), and Hanzanillo is the major port for manganese (41,000 tons) (See Appendix Table 3).

70. There is also a large internal movement by rail of coal, coke and iron ore to the steel mills at M4onclova and Monterrey. Finished products, in the form of bars, pipes, rails, constructional steel, etc., move to large and small civil engineering and building sites throuzhout the country. In fact, the bulk of output during the first stage of the distrib- utive process moves by rail. often over long distances.

71 Petrol eTm products, whirh ac.count for 14 npercent of the total tonnages carried, are another group which are shipped by rail in the early di stributiol stages. mTe main product in the a-roil fuel l f wli rh 2.4 million tons were loaded in 1961, is unaffected by the extension of the pipeline netwrork or by road transport. Significant volunmes of gasoline and diesel oil are still carried by rail, though they have shown no growth in recent vears 1hat appenrs to he hnnnening is that,as they lose traffic as a result of new pipelines,they gain traffic in the areas not -ervei hv nippelines aS the general demnnd for gasoline and diesel fuel grows. It is only on the Del Pacifico that a significant fall has taken nla i,n tihe moverement of +tescz 1.rno proic an+ a i"er-ij1+ of rrona competlti+on. The railway is fighting back with rate reductions and appears to be having some success.

72. Large vorolumes of l-imesotone lime and gypnsu1m moverelatively +short distances to cement factories located at IMonterrey, Leon, Apaxco and aroumd 1 r-'4 >-<^^o~ zvnT,r,-4 ~ ldn 1 A4 r,,~ s-oeodsa.das~rva ~ ~ ._v,tr~~~~1 -1c sme n.,A -- A b',-,." 11, 4rela.. a .~+ ti 4 vely-- ' - ,r-- r+- distances to widely scattered construction sites. This group of products

4t ogethe-r with proAuc4t - -- -s,- -lt.,4s4-I 1L± 4fro.t1 Gt'fLI. Cos ar e4a )L -A -24- kaolin are "traditional" railway traffic. As a group, these inorganic products amount to some 12 percent of the total tonna.es carried b- riil.

73. Industrial, manufactured and processed goods, including goods of local and foreign origin, form 24 percent of tons loaded onto the railways. Tle movement pattern cannot be briefly summarized. However, NIacionales de ,.exico figures reveal that, so far as this class of traffic is concerned, a small group of products make up 83 percent of the tons carried or 75 percent of the ton-kilometers performed on this railroad. The most important items in the group are sugar products, cement, iron and steel products and fertilizer (See following table). Except for beer, which almost everywhere is a declining rail traffic, these are bulk products of low relative value that generally move in full car loads. Tneir average length of haul varies. For example, in 1959 the railroad moved 406,000 tons of cement, 70 kms. between Tolteca and NIexico; 150,000 tons of refined sugar was railed the 188 kms. from San Cristobal to Veracruz; 79,000 tons of steel tubing moved to 40 stations an average distance of 730 kms. from i4onterrey; 76,000 tons of beer was shipped from Orizaba to 119 stations at an average distance of 600 kms.; and 15,000 tons of paper

was transported 1,270 kms. between Nuevo Laredo and rtexico City.

MAJoR INDUSTRIAL TRAFFIC 0N THE NACIONALES DE MAEXICO 1961

fons Ton-Kms. Product ('000) (Millions)

Refined, Raw Sugar, Molasses, etc. 1,328 529 Cement 1,004 148 Iron and Steel Products and Scrap 782 464 Fertilizers 638 338 Industrial Chemicals, Acids, etc. 325 253 Old and New Empty Cartons and Bottles 160 87 Beer 158 72 Newspaper and Wastepaper 146 86 Vegetable Cils 96 79 (d of all Industrial Products) (830/) (75%)

74. '1MTile there has been an increase in total freight traffic, the composition of the traffic has changed. Figures for 1951-61 for all the railroads show that forest products dropped from 5.1 percent of total traffic tonnage to 2.3 percent; inorganic products increased from 2.8 percent to 12.1 percent of the total. A closer inspection of the traffic figures (see Appendix Tables) indicates that whiie timber tonnages have steadily fallen it is confined mainly to those products which have a higher value rather than untreated bulk timber. The big increase in the importance ofl "inorgani-c products" is accou-nted for hy the rise in lime qnd limestone - 25 - shipments to the cement-making industry and by sulphur products, mainly for export. These items reappear as finisned products--cement and fertilizers-- in the industrial product group. In the agricultural sector the successful drive for self-sufficiency in grain products, reflected in increased shipments of wheat and maize, made for a total increase in the agricultural percentage despite the fact that perishable produce such as tomatoes, pineapples, fresh vegetables, etc., are being moved more and more by truck. Mineral products as a group have remained fairly steady in volumes, but the fall in some of the traditional ore exports as a result of bemni- processing and their conversion to bars and ingots within Mexico has been offset by a doubling in the volumes of iron ore :-1oved.

COMPCSITICN OF MAIN PRODUCT GROUPS CARRIED BY ALL RAILWAYS (percentages)

Product Group 1951 1961

Animals and Animal Products 1.3 1.1 Petroleum 15.6 15.0 Agricultural 19M9 21.9 iorcstry 5.1 2.3 Mineral 24.O 20.4 Inorganic 2.8 12.1 Industrial 22.8 23.9 LCL, Government and other Railways Traffic 8.0 -,.

TOTAL 100.0 100.0

75. A further distinctive feature of the Mexican railwavs is the high proportion of freight traffic which is moved in Full Car Load shipments, as shown in thb fOllowingy table (in millions of tons):

1O42 1961 YRailway F.C.L. L.C.L. F.C.L. L.C.L.

Nacionales 15.91 .23 24.83 .11 nel Pecificor 1=70 =02 2J,1 .02

7A TIn 1952 Less +thnr'.- T.Load- t.ot.al trafffic foxr All the rAilwAv.y was 1.9 percent of all freight traffic. By 1961 it had fallen to 0.6 percent. This is a reflectio^ of greater fti s ia_ization of the rai lways and the impact of road competition, which has taken away the high-cost, small-loads,

P77 A fn-'. factor affecting freightfv. tlrtaffic is tin.rche avrg I I * '2t L.t Lc. cJ- U-J -- - - _t'~'kJA length of haul. The average for the Nacionales in 1961 was 445 km., for v-1_ 15 10 -P- Cot 17_4Pfi 1 or+a>_.Tl a }; c Th::> Liie lJe± Ii L ull , aSA Ifor the * OJ sy4tey a . a nol e '.'-L44e m average figures understate the true lengths of rail haul because they - 26 - relate only to movements on each particular railway. Traffic which originates oln one railway and is then trans-shipped or hauled by another railway is recorded only for the distance run on each railway. But of greater significance in the present context is that the average figures disguise wide variations in the average distances which particular commodities are hauled. We have already noted that the Nacionales de Mexico carried certain products such as sugar cane short distances. but many products are also hauled long distances. It can be inferred that this rnilwav hns nnnrone.ach n satAqfactorv rail traffic situption wherebv it hauls large volumes of bulk commodities in full car loads at all distances nnr qmnlI1er unlimn of hIiighpr vnl ue rmmorritios longnistances

78. A further fmn ii-mo raf' -il traffic on thIe acrimcina- Ad Ma.yin_ is_ its concentration onto a small number of stations. In 1959, 36 stations either shipped arnd/or received goods in excess of 200,000 tons. These few stations, out of the 2,000 on the railway, handled 74 percent of the tonnages receivedrd 61 percentl of - +.ctnnacqre chiinppd thatnn mnvel -.n Full Car Loads.

79. Future Freight Traffic. The mission has not tried to prepare traffic forecasts for each and every- ralwa, +athe a sffor ha made to determLne the basic freight traffic trend. The mission examined f-irst4theUIic past V rel-'atuionsh"ip ofC the railwaJ traffic th the ge0.er-a growv*h of the economny and found a close relationship between growth in ONP and r4i. f]L ig gl t.LJion-kms- . HowUeVeJr , as th,e .Z.LMexican econom,Vy expands, 1-nCAsUI4tr i-l04. and manufacturing production is expected to grow more rapidly than agricultural,fr5ty lietc - ad r,trlproductiJon. Ths 'as ir.ortan long-run implications for the volume and composition of rail traffic since! .UIu st rij.L andu mriifaturciung producuution -un MiU.LeLuU t oif1 ge nerj.atea Lets long-and medium-distance traffic per unit of value than does primary pro- .uiction. Moreover, ulie auddtLUonaj gelleraueu UraL±±c U1dxiU 1.u se 0. a character which is more suitable for truck rather than rail movement. Plants will be located within short distances of their principle markets or, for example, in the case of petrochemicals, near the source of raw^ materials. These locational proxinities and the generaily "high-value - low-weight" ratio characteristics of many finished products on which inventory charges influence the choice of transport media can be expecteU to work against the railways. Thus whatever may have been the past relationship between growth in GNP and rail traffic, this is unlikely to prevail in the long run because of the expected public and private investment in basic iron and steel and manufactured products, motor vehicle, chemical and paper products. Highway developments and advances in trucking may continue to influence the rate of rail freight growith.

80. Xlhile in a dynamlc economry tne past is nct necessarily a good guide! to the future, the mission does not expect an industrial and/or agricultu-ral revolution to be wrought in Mexico within this decade. No major changes in the geographic distribution of production and marketing of the main commodities carried on the railways can be seen within the next 5 to 10 years al- tihough new investments will open up areas and generate new traffic. For - 27 - these reasons, and despite the changing relationship between GNP and rail traffic, the mission feels it is not unreasonable to postulate the same broad correlation will continue 1or a few more years.

81. The railways can expect increases in certain types of traffic. A good example is freight associated with the construction industry--sand, gravel, limestone, cement, timber, and constructional steel, as well as some fixtures and fittings. Other major increases are expected to appear in food grains, fertilizers, mineral ores and concentrates, and fuel oil. There is hope of increases in miscellaneous industrial and manufactured products, but the mission doubts that the railways will be able to make significant increases in their share of this traffic group.

82. For the purposes of projecting future freight traffic, an average rate of i*ncrease in M'P hbtween 1901-70 of 5 nercent ner year has been assumed. Although this figure is on the low side of the 5 percent--6 percent ass med in the Main Report for t-hp immerdiate futurej it extendl over a longer period and provides a satisfactory base for estimating railway traffic. Pronj eint rnn +.hii h:n ;i nn nnt.iirpaterd grnwth frnm 1)1-)[ hil- lion freight ton-lcms. in 1962 through 16.1 billion in 1965 to 19.3 billion in 1970 is expected for all railway traffic. (See Appendix Table 10 for projections.) Such a rough forecast can provide a bench mark for the deter.mination of future reve.nues and equipment re_uirements. A similI-r broad approach, followed by a group of consultants to some of the rail- waysr inv 1958,R ha p~~rovedlhi<,jl y accurate f±or t",-he ±.-f'fi r-'rri ed s~inceo then. In the absence of detailed rail traffic forecasts, the mission be- total freighlt ton-kilometers expected.

Passenger Traffic

83. Despite an increase of some 80 percent in real Gross National Product betweenu 51-61, and an, estimated population increase of 3 percent per annum, total p-assenger kilometers have shown a slow but erratic rate of grouWbl WIe_L.L ILUo L trLendUUiS 5sLn.i oLLAVI thUot-UIUb LL)Uof U.)- pUWL carried.

8h. Revenues from passenger traffic account for 10 percent of the combined total income of all the railways but, as mi-ght be expc ted, thelr relative contribution varies from railway to railway. (See Appendix Table

9 *J £1).'rV ec passen-Iger retveiUtae acco itUUio UiW' AJJWJjeU iiLiv 11 1I. f .-cdec of Tijuana y Tecate to 40 percent of total revenues in the case of the Sonora-Baja California. The latter case is expla'uable partl-y by the fact that the railway crosses a large desert area where roads are poor, agricultural production is low and walking is an impossible alternative. On the Nacionales de Mexico, which carries 88 percent of the total passengers for 78 percent of the total passenger-kilometers, passenger revenues account for only 8.7 percent of total revenues despite the fact that 43 percent of the total train-kilometers performed in 1961 were for the carriage of passengers. - 28 -

PASSENGER TRAFfIC STATISTICS FOR ALL 1'LXICAN RAILWAYS (1951-61)

No. of Passenger Average Distanc- Passengers Kilometers per Journey Year (millions) (.'Lllions) (kilometers)

1951 33.1 3363 102 1952 31.0 3328 107 1953 28.2 2987 106 1954 30.6 3259 106 1955 34.4 3764 109 1956 33.7 3861 111 1957 33.0 3837 116 1958 29.3 3h91 119 1959 30.6 3725 122

1960 _2-0 4128 127 1961 33.6 4287 128

85. Two railways--the Sonora-Baja California and the Pacifico-.-are chnracterized by long passenger halls ()32 kcm= Andn520 km rsnpectivey1v) which are unlikely to be taken away by bus competition. Most of the other r5ilways have average joUrney dist.ances of some 100 km. or less, which makes them vulnerable to competition as roads are improved and bus ser- .i ces introduced. The increasing avrerage journey distnrre reflects the ability of the railway, in general, to keep and increase longer distance

*iAlP O QU + +hQt'tAQ t4jJ$ b + LAS)Jt Q.J. +_J i Q+S'-' nA tOtt Q I Q

VU V L?~ V, V VU± \ _V_VW --L-*J± LVJ..J1 V- 'JJ. V~ 4.J. .tJ U V tJ^z6 S6. Th'P,emost st r-kn£1 i,-or- at Jon or,- passenge ta fi -is th at Jin -'1 cases average revenue per passenger-kilometer (4.3 centavos) falls below U'iIu ~L~civz-rt~1~, C UIIVL'Jid±a U1CL1JJ41LU.iLL.kJJ4, UQ.L.0 , k U.C Lt ±1i4CVUb) ±L.LVUJLVt$ LL L;,U-. ing the traffic. The range of revenues on Government-owned railways is

W-.,C, A fl nIQ'+ r 'rA 1 A 1 e ,4Q4 +-h .trva . VflSVW ..L .J '. CLhL.tJ V'S L'CsVG O F F t-i s-a.IJII,tuVxi. IVh..Jt fi I l±s CVw Cl± s marginal cost per passenger-kilometer ranges between 5.6 and 15.0 centavos V see ppend-; TablLe 9) TJ. rliJJ 0o t0I1r of 2.0 certavos between margirLal coots and revenue per passenger-kilometer on the Kacion- ales de .lexico, Th.e la-;gest carrie-r of passenger_, will be JUScu5ssu later. Despite low average railway fares, particularly on the Nacionales de Mexico, most of the increase in passenger travel has gone to bus trlisport, with a small but nevertheless significant amount being captured by the aiLrlines .

87. Projection of Future Traffic. Tne Iuture growtn in railway passenger traffic will depend, among other things, on the growth in population, per capita income, the development of other means of transport--notably auto- mobiles and buses--and on the relationship of railway fares to other - 20 - transport fares. Over the -eFainder ci? th-i decade,The gorowinnopulatio and in per capita income can be expected to produce some increase in passenger traffic. However, the other factors and the possible closure of some branch lines and passenger services on the railway wll moderate these trends. In view of the past variations the net result is difficult to forecast, but the mission believes the railways would be unwise to antici-- pate or even to encourage any large increase in passenger traffic.

88. Between 19IL7 and 1961, on a calculated straight line trend. the number of passenger-kilometers increased from 2,805 million to 4,147 million. This was equivnlent to a 3.8 pereent ner vyer inGrea9e between 1947-48 and 2.5 percent between 1960-61. Projecting this trend into the fkit.re the nnnunl rate of increnqP wonlrdi decline thrmiich 2-2 nprre-nt. in 1965/60 to 2.0 percent in 1969/70; i.e., to 4,560 million and 5,070 million passenger-kllometers in 1965[ arnd 1Q70 rlniy rThmissin fpp:lc that this simple projection is both reasonable and conservative. There do 1 no+ --- se r t+ beho nXr O^%o; ,,1 r.I n Ita,- - +, C. c' ¶1 o coma +?.r V7 .4, n leads it to believe that Mexico's experience will differ from that of railwcW-r, n n-,otber -- +rres i-- re-laiJon tc pas enger tr-CJ n by-r i

-voo,ot~i-vean-1. RLo-l'l Stoc-- I, T)_-remen

o M7esss-ionDva -- vwe- veso that Jt ana-lysaJso-P frsiElgIt and passeng patterns and probable growth, bolstered by an analysis of operational efficiency Vwhare. needcIILed, provildes a workinlg, bas.is for Jjudging thve l4oco= motive and rolling stock needs of the I1iexican railways. Programs for track UIworks, YIAX~CC0~ I.d.LCrad L s andCL. courliaQonUIUiik%Aj'i CI.cue k cloel.LCCJ, ±relte-- KCJCI'CU 510o kJC±parti %UL%.i ~u~L7_-. sections of line or railway and have been assessed in connection with the inves.,ment. jJ±JS.rcJ, J.UJr each ve LLwtV .. LULLing theiL asse 1.1Viofrlln stock requirements.

90. Dieselization. The most important equipment issue facing the railway adMinistration is Lhe complete elimination of steam power. On the following page is the mission's calculation of the estimated savings that have accrued to the Nacionales de Mexico from dieselization. it is based on tne period 1952-61 during which the railway added 475 diesel locomotives and reduced its steam locomotives in use by 798. It is reasonable to assUnIe that if the locomotive stock had remained the same as in 1952, the additional traffic moved in 1961 would have required additional trains and the employment of more, rather than less, men. On this basis, as the calculation show.s, annual savings in 1961 due to dieselization during the period are estimated at Ps. 209.1 million, as a minimum.

91. The prnie source of savings from dieselization comes via the labor force. In Yiexico the savings in fuel costs resulting from dieselization are relatively small as compared with that in countries where coal is used as fuel. While there is a subsidy element in the price of fuel oil, the economics of fuel costs can be demonstrated from actual price levels. Tne cost of fuel oil for steam locomotives in Mexico, according to the 1961 railway statistical returns, was approximately 11 centavos a litre, whereas - 30 - THE EC9CN1ICS OF DIESELIZATICN During 1952-61, the Nacionales de Rexico made the following change- over to dieselization: LoT.motives.i ir Stck 1952 1961 Chan e

Steam 1,237 439 _ 798 Diesel 176 651 + 475 Electronic 12 10 _ 2 TOTAL 1, 25 1, 100 It is reasonable to asslume that if the locomotives stock had remained the same as in 1952, the additional traffic moved in 1961 would have required addlitional trains and the employment of more men. Here is the record:

Men employed 77,649 69,739 - 7,911 Train/kilometers, thousands 46P990 46,498 - 501 Passenger/kilometers, millions 3,302 4,284 + 982 Ton/kilometers, millions 9,989 13,546 + 3,557

---- ~ 2 - 4 ------1 - - - ITIeM ILJLL[lmUM -- sav±iUnUg UU U) delziUsec1--ed Iby' may ther-efe te LCdLU-- lated as follows: Yilions of pefois Savirgs in laor force: 7,911 men 0 pesos 16,000 per employee 126.6 Savings in freight train/kilometers:

Actual 1561 = 22.0 million Estimated on 1952 performance = 29.7 milliHon Saving 7.7 million train/kms. at out-of- pocket cost of 7 pesos for crew, fuel, lubricants and locomotive materials only 53.9 Savings in fuel costs, freight trains only:

Steam 4 pesos per locomotive/km. diesel 2 pesos per locomotive,/km 22 0 mni1 1 ion locomotive/km. @ saving of 2 pesos 144.0

Mi n.i --

Increased rate of depreciation of diesel as opposed to steam locomotives: 22.0 million Joco.motive/krn at 0.7 nesos 15.4

Estimated Annual Savings: 209.1 thRt IOr diesel fuel was 30 centavos. On duty tr-a used in freight and mixed traffic there is a significant advantage in fuel cost in using dLesel as opposed to ste,i because the ratio of 1uel cons,W-ption in litres is approximately 6:1 in favor of diesel. For passenger service locomotiv2s the ratio is approximately 3;l, which wvo-ld be favorable enough to c-ncel the difference in the cost of the two types of fuel. Nevertheless, the total savings are sufficient to justify the eli-m1ination of steam power orn all the Mexican railways.

92. The railway administration of the Nacionales de Mexico has asked for 169 diesel locomotives to complete dieselization of the railway by 1965. The mission's calculations (see Appendix Table 11) indicate that this additional rnumber of locomotives would be sufficient to handle traffic at existing levels but may not be sufficient to meet the increase in freight tonnage which the mission estimates will take place up to the end of 1965 or thereafter. As a practical course of action, the mission endorses the railway adin-istration's proposal as economically Justified at present traffic levels and recommends that the position be periodically reviewed to ensure that either by improved usage or by additional purchase, that motive power capacity should not be allowed to fall below traffic needs.

93. As an indication of maximum needs for dieselization by 1965, the mission has calculated locomotive requirements on the basis of one diesel locomotive being equal to 2.5 steam locomotives and operating on the railway's 1962 work performance average--this would make each diesel equivalent to 257,000 gross ton-kms. of work per day. On the basis of the mission's traffic projections, the complete dieselization of the Nacionales de Mexico on the existing standard gauge tracks, as well as to replace all steam-yard l colt;i7 -, WJ_' Ve-irethe pur-h±se of 209 additional 'iesels irn the threx--- Dt .r!D 1963-65. Tn t'e invastiernt -ro ra is o- both the Nacioriales dei !1exicD srl t-,e ecretaria of Public lorks -.±rz roj-cts designed to widen t" st tan-;-L- J 1I t e narrori- 3'0t lines t-,Ll remaining on thie i1acionales le iexico. Thorc are, at present, i5 steam loco:iotives in stocl: for tie op- eratJDnn o2 - 1lI It is Cstiqtred t,_t- -ifter tie conver3ior of these 1ines to standari--au-o-e it should ' .- oss-'-l to larjile the tr'affic with 10 diesel locontit,e: In its discu,s ior of this railwav'as track works program. the nission argues that conversion of the narrow-gauge on the Nacionales de iexico -shcls-hau -2 t.ra: i'J J.stifinationonho,u1-1 be accor1i Lre t prior-Lty.

9L. Maximum motive power reauirements to complete dieselization of the Nacionales during the period are therefore estimated by the mission at 219 Gocomyotives. Periodic review of the railway's motive power capacity sholLd also take into consideration the relative efficiency at which the current stock of locomotives is being used. The mission noted that statistics showing the "hours in use per day per locomotive available" are not kept on the Nacionales de Mexico, nor, as far as can be ascertained, are they available for any other Mexican railway. Because such figures are a valuable indication of the adequacy of the motive power stock and the relative efficiency of its use, the mission recommenis that their preparation should be~~V added toA~. Wvhe ohWwla colI" Oct ve d stsfac toyr l" waC2y statistiV~kc information collected and published in Mexico.

95. Train-hour figures are available, however, and they can be used to c cula 'teL. C U.L_L lcesicy .LBy aPP 1 .j. ,J.lJo oIL locomotive to train-kilometers, for instance, it is possible to arrive at the nu-Uber of trln locormotive-ho-us. Train locomUotive-houUs are, ofL course., not the whole picture since they omit the time interval between the locomotive leaving shed and the actual departure of the train and the period from w:hen the train arrives at its destination until the engine finally reaches the running shed. Tne foliowing calculations, based on 1961 figures, indicate a rather low utilization of the present Nacionales de Miexico stock:

(i) Train/kms. total productive 38,160,122

(ii) ilainline locomotive/kms., total productive 41,168,444

(iii) Train hours, total 1,466,483

(iv) Number of mainline locomotives available for traffic 614

(v) Average number of locomotives per train (ii + i) 1.079

(vi) Total train locomotive-hours (iii x v) 1,582,335

(vii) Train locomotive-hours per day per locomotive available ( vi ) (iv x 365) 7.06

96. As a check on this calculation the latest month's (July 1962) statistics for freight and mixed trains available at the time of the mission's visit to Mexico were analyzed, with the following results:

No. of Service- Train Locomotive- able Locomotives Train Loco- Hours per Service- Available motive-Hours able Locomotive-Day

Steam (freight) 140.4 25,418 5.84 Steam (mixed) 34.3 h.804 4.52 Diesel (freight) 225.2 53,732 7.70 Diesel (mixed) 22.1 11,229 16.39 Average 422.0 95,183 7.28

97. With the exception of diesel locomotives employed on mixed service, these figupres nlso show a low utilization of the available locomotive power. The hours shown include only the time actually employed in train service. 4 In prac+ lc +h1.n-- i +r^ fic p r locmotve-ay, (sh dA +o se w\.nd be increased some 1-1 hours assurming normal operating circumstances.

e v blheless, +hie reLsulltu&n)1>j± 1LA" iL-"I L.L.J. Uhoofw VVIIdUr ctmy bet regarded as an economic and reasonable use of motive power, particularly L;esel ThLle r-Li4ss-ion flee'ls that a sir,,i"la conclusiLon cout'-d be dkawn for the performances of the other Mexican railways, although because of their m,u chI- ghtuer trafcdensityit1_L. .,tIfay notb posibleJJL" _to, obtain .muchbUett'Ler performances. Locomotives, at the end of one journey, may have to stand ine-vilably in the shed for severaL hours before the next train is ready to leave. However, the mission believes the above analysis of efficiency in locomotive utilization weighs against the purchase of 15 additional main-line diesel units by the Chihuahua al Pacifico during the period under consideration.

98. The mission's recommended program for 1963-65 contains a provision of 495 million pesos for locomotives, as compared with the 571 million pesos contained in the proposed program that was submitted to the mission. The total contains an amount of 79.3 million pesos for the purchase of new diesel motors,. Eighty of these will be for the Nacionales de Mexico to replace worn motors 15-20 years of age and motors of smaller horsepower. The remaining 15 would be for the Pacifico. This railway proposed a motor replacement program for the 40 existing diesel locomotives beginning in 1964. The mission would suggest a more modest program beginning in 1965, beginning with the modernization of the oldest 15 diesels with rnotors of improved horsepowier and design and allow the cannibalization of motors removed for ot;her locomotives in the fleet.

99. Freight Cars. In the past six years the Nacionales de Mexico has spent a sum of 1,028 million pesos on the purchase of new freight cars, which indicates that at least 7,000 cars are at present less than seven years of age. If the remaining freight cars are assumed to be fairly evenly depreciated, then, on the basis of a 30-vears' car life, some 10 percent will require replacement in the three-year period 1963-65, i.e., 1,200 cars on the basis of a total stock of 19,000 cars, in use or under repair. In the mission's opinion, the expected level of traffic up to the end of 1965 can be handled by the equipment on hand (with reDlacements as necessary) plus an improvement in car-handling and turn-around to cover the expected increase in traffic. The confinement of purchases to replace- .. ent needs ,ill iean a s>t-antial reduction iI' the investn.mnt proposals for

100. An imnrnvementf of 10 nercent in car turn-around time should not be difficult to achieve on the Nacionales de Mexico and such an improvement would make n siubi-tantial contribution to car a-vnil hility. According to the latest available statistics there are in use on the Nacionales de Mwexico some 16,.500 fretigofht c-a9 of its-3+.toget he r with some lQfOl00 rqr5I belonging to foreign railways and private owners, making a total in use of 00 frih carsn A 10 percert im-n,.nr.rov nt %on1Ad inur c il- ability by the equivalent of 2,900 cars, the resultant benefits of which - 34 - would accrue in the form of improved services to the railways' customers; a potential reduction of 330 million pesos in future capital investment, and a not unsubstantial saving in car rents. un foreign car renrtal-, Mexican railways pay a daily fee of 36 pesos (U42.88) and the surms involved in rental fees are large. The sum charged against Nacionales de M!-exico revenue on this account in 1961 was 43 million pesos.

IrE'!IGiT vk-i U¶2lIIl,TO:: JTlI-.IC8 (1956-62)

Average No. of Average No. of Net Average Carload Kilometers per Day Tons/kms. per Day in Tons, per Serviceable Car per Serviceable Car Loaded Cars Only Year N. de k. Pacifico N. de N. Pacifico N. de M. Pacifico

1956 50 71 1,114 1,568 32.3 33.7 1957 51 31 1,191 1,900 33.5 34.7 1958 45 `4 1,050 1,772 34.5 33.0 1959 46 79 1,040 1,335 34.4 30.9 1960 48 89 1,099 1,93& 34.5 34.4 1901 49, 86 1,098 1,,71 34.4 35.1 1962 43U& 91 969-1J 1,893 n.a. 32.3

a/ Figures are for the period January-August 1962

101. In order to achieve this inprovement in freight car turn-around shioDers should be encourazed to release cars promptly and demurrage charges should be sufficiently high to discourage the use of cars as warehouses. The railwav; for its part, should ensure that delays do not occur to cars in placing and withdrawing them at terminal stations, or at interchIar-e stations when in translt.

102. The util i atl.on on freigfht cars on the Pa.ifico apnears to he reasonably efficient and, in addition, the railways request for freight cars is confined to the replacement of old cars aeouired at the take over o' the railwa, in 1951 wohch have reached the limits of their service ii 'Pe ancl to inGrese the siiuply-v of nqrti cii ar tvnes now in short. sipmnlyv The mission also looks favorably on the purchase of 400 boxcars and 100 ,gondolas byTrrth Ch blihuahuaial Pnoiftii'o toc re-prlacec worn ouit. couinriient.

103. Statistics on average carload indicate a very fair utilization of capacity, as opposed to turn-around efficiency. In passing, the mission wou-ldAmention ann apparent sral contracBtiorin the crl-oad statistics that do not invalidate the miission's judgment regarding equipment utiliz2- 4 tio,s but+ *.hic(h thel, ahorities m r -Ts +to1 a .m1ne* ly ivn thi m ssiol,'z visit to N'.exico, the ixTacionales de Mexico provided information for the 4 Yrear 1 ,.ri, 4 ; _ ril .,AaA n 4'4 mr,,o r 9A "G nn+1A- + At_ l, 1 mQ+ Qn C n 1 c rIcA ..L ww-. EV t.i4 7v I¼rAA.SA¼'. IJ .L1X± 5 . 5 1. %VJ J1. f t *1. SId v V-i.fVlSLJ.. A* '_ '-'} | p1IJ .. 1.O''vw - 35 -

cuiyl±omieter, WIAl'i tlhIe lLLbssUion 'as used in a nAlilUe- UL caLU .Uaio (ca: capacity is 50 tons). The figures shown in the Appendix Table 6, however, are taken from the same railways. "Estadistico de Trafico y Kiioiaeurajc, supplied later, show the average carload, for loaded cars only, as 34.3 tons in 1961. The reasons for the difference between the two sets of figures, which one wzould expect to be similar to one another, is not known.

104. The mission's recommended program contains a provision of 257 million pesos for freight cars, as compared with 602 million pesos contained in the proposed program that was submitted to the mission.

105. Passenger Cars. With minor exceptions, the mission believes that the forseeable increase in passenger traffic can be handled by the existing underutilized equipment. Since 1952, the number of passenger coaches in railway service has increased 23 percent while passengers carried increased only 7 percent. The unprofitability of the passenger operation on the major railways, with their consequent contribution to railway deficit, together with the lack of any economic justification for many of the passenger services, argue against the purchase of additional standard passenger coaches. Thus the mission finds no justification for the proposal of the Nacionales de Mviexico to purchase new and secondhand passenger stocks in a number that would exceed the number of' cars it owns at present (see Table). Rather what isneeded, in the mission's opinion, is a

PASSENGER EQUIPMENXT ON TIHE NACICNALES DE iEXICO, ACTUAL AMD PROPOSED

Actual Stock Requeste7d Passenger Eq uipment 1961 1963-65

1st class coaches 194 220 2nd class coar,he 311 )476 lst/2nd class composite coaches 61 171 Srleeplng cn-r 174 215 Express/taggage 102 136 __rress GnrS 152 - Business cars 43

Observat~ion cars - &tfI ni cars and geernl 92 74

'motal, 1.IRZ" ---gagt, - - _ _ __ _ 1,129 1,292 3'0 gauge 54 _

1,183 1,292

ratior.al 5.t pro.hatn-rreplrcnn*. will mnit-i n passengr rail services= The mission's suggested program is based on a normal replacement period cf J3 yL LuI taking in oUosidericnuull uhth niumbe-r of Cars aireaay approveo for purchase in 1963. The revised estimate of additional cars recuired i'3 as fo-l.lows:i

Additional cars Over 35 years Purchases approved included in 1963- Type of Car of age for 1963 65 program ist class 58 120 - 2nd class 87 26 61 1st and 2nd class composite 63 46 17 Sleeping cars 70 15 55 Dining cars 9 6 3 Miail and express L - 48

106. In addition to the replacement needs above, the mission would make two exceptional recommendations in regard to new passenger equipment for the Nacionales de Mexico. The addition of 10 observation cars is judged to be a justified investment on the grounds that present stock is insufficient to meet the needs of all Pullman services. The present defici- ency is met by hiring cars needed from the Pullman Company at high rental costs.

107. The second exception involves rail-cars specially designed for short journeys. The mission agrees that studies should be made of opportunities to improve passenger services through the effects of equipment modernization. It may be possible to minimize the loss on continued passenger services by exploiting technical innovations. Provision is therefore recommended for the purchase of 10 rail-cars, which should be sufficient to enable an operational cost study to be made to provide additional stock needed for the small estimated expansion in passenger traffic up to 1965.

108. At the same time. the mission would argue against the purchase of rail-cars for use on the Pacifico at this time. If the experience of the Nacionales de 1iexico writh these special cars proves successful then the case for similar cars on the Pacifico should be reconsidered. At the present level of Pacifico's costs and fares. the mission feels it would be a step in the wrong direction for this railway to augment its passenger services without a clear and proved case for doing so. Since 1958; the mission notes the railway has doubled its passenger services--only to increase its operatifng losses

10Q. As in the case of the Racion-mles de Mexico; however. the missicn recommends a normal replacement of Pacifico's passenger coaches, based on a 30-year life. This would mean purchase over the three-year perioi of a number of coaches equal to 10 percent of the existing stock. No increase in +.ho laevrel of +.he npreen+. tok of nnpspnger nqipnmont. cnn bhe iiiqtAfied(i on economic grounds. 110. As another exceptIon to the replacement-on-ly rule, the mission approves of p'lans of the Chihuahua al Pacifico to acauire a number of secondhand car coaches, Pullman cars and dining cars. Purchase of th.s equipment would replace rented equipment used to provide desirable pes- senger services and thus would result in an economic proposition.

111. The mission's recomnnended program includes a provision of 267 rillion pesos for passenger cars, as compared to the total of 1,146 million pesos contained in the proposed program. *-38 - Program of F. C. Nacionales de IIexico

The mission's recommended program of investment for the TWac4ona'es de Mexico totals 2,926 million pesos, as compared to a proposed program of 5,796 million pesos. TWven with the suggested reduction, the recom- = mended program for this railway accounts for 77 percent of the -total for all the raillways. The investment implications of the mission's estimate of rolling stock requirements, as previ.ously analyzed, can be seen in the table below of proposed and recommended capital expenditures. The investment total for locomotives covers the minimum need for 89 diesels, plus 80 new. diesel motors and a small amoant for the purchase of locomotive/caboose radio equipment which will reduce delays and speed up inreight train movements. Seventy-nine of the diesels are scheduled to be purchasecd in 1963, the other 10 in 196$. The reduction in the proposal for freight cars reflects the mission's judgment of the possibilities for im,)roved use of the present stock. The -orovision for passenger cars incluj.es !l4.l million pesos for purchases already approved for 1963, plus an acdditiona.l 45,8 million pesos folr 61 secondl class coaches, 13.6 million pesos for 17 composite coaches; 52.5 mil'ion pesos for 55 sleep- inF cars; 3 million pesos for three dining cars; 24 million pesos for 48 mail and ex-aress cars; 10 million pesos for 10 observation cars. In addition to the reduction in freight and passenger cars, the mission is recommending substantial reductions in track worlks and telecommunications.

pj`l(DP037D ' ?-C'1.-7 T.I7 ITMV7TT ?ITTS, 1963-65 (millions of pesos)

ActIual Pronosed Mission 1960-62 Pr2gram Recommendation

Rails and fittinr-s 477 940 466 Othpr tra-c nrlo9n 1I0 1;295 73) Locomotives 2832 479 479 Rrei ht cars 1h8h ih8q1L4 Passenger cars 9 1,007 223 Telecoz(-nmrwnicatintJns nnrl s,ignals 20 0,7 271i Buildings 407 633 418 Mi Ictneoi- 87 h,30 188

I CAA <5-79" 9 Qq(, 11'. rlecormunicationsO Thae provision of centrali-zed traf'fic control on 1,i:' ro ta-kilometecrs is the major iten proposed under this heading. At presenu centraliied traffic cortr3l is installed on short stretchies in and around Nlexico City and in the vicinity of Queretaro. It is nowy proposed to install centralized traffic control on two main line tracks for their entire length as well as the linking up of the two sections nowJ in operation between MIexico City and >,ueretaro. U-hile the mission agrees that the growinir traFfic density necessitates improved corimunica- tions and control systems, Darticularly on the 11exico City-Q!ueretaro section, it remains u,nconvinced that the introduction of a less costly modern siynallingr alternitive h)as been satisfactorily investigated and compare:3 'Tith the CTC proposal. Until the railway satisfactorily demons'rates the greater benefits of CTC and takes into account the Secretariat of Public Wjorks? proposal for a new link construction wThich would affect operations in the TUexico-Queretaro section (see Nele Construction Projects) the mission recomrrends that the CTC project as a wThole be oostnoned.

114. Discussions wTith the staff of the Am.-rican A.ssociation of Rail- roads' Si-nalling S,ection, together with sxperience elselwhere, su,-:-est that a modern sign.allin- systen costinr- 'ruch less tihan the proi-osed expen diture f'or CTC wlould suffice for the traffic nowJ hanCdled or expected traffic in the foreseeable future. Tfherefore, the mi.sion recommends 'he provision of an anount equal to one-half of -that nro- posed f'or CTC.

115. In addition, "Priority All expenditures on microwave installa- t.oiS and teleDhone equipmnent have inclaJedLUen so as to improve telephone dispptching, which is nolr haiipered hy old line w,fire and eouiprment, and to linkc un sections of rail-avTwith lexico City th'at are not now so connected to headquarters. The total included in the mission's nrogr-nm for telecormnunications amounts to 273.7 million pesos, as compared to the 477.2 million pesos in the proTnosals.

116. Relaying of Main Line Track. The railvay proposes -to relay 2,933 route-kilometers of main line track and a very substantial length of secondary tracks w7ith material re-covered from the main line. The ultimate need for a nrogram of tlhis size i.s accepted hy the misnion on the '.asis that the omount of work contemnlated ,Twill remove practical- lv n1ll the ol-1 anr liiht.T.Teirht. rnil in i;he main li-ne tr cks anrd to 2 larr,e extent, ITill removre most of the rail on the secondary tracks that is )4n to 50 years of are and lightepr in TTweirght than 85 lbhs per ynrd. I-IoTrever, it,is considered extremiely douhtful if this entire nrogram can be successfully unde't en inr't neriod of 21- vrears or so remaining betw,!een the time a dec-sion is made to un*-erta-ke the work an,-, the end of 1 6{;= - 40 -

117. The -Ission hsz atteripted tr. assess tVhe onou-nt, of' rail layin,, that, could reasonably be undertal:en, !both fro,- past perZoi-mance and i-,regard to present tec'lnical capacity, the need f,or the proper after-care and attention to ne='jly-]aid rail and the avoidance of excessive interruntion to traffic and of hirinF and training too lar,re a body of labor for a nrogram of such short duration. The mission's recoTmmend,ations are outlined in the table belo!r. The indicated rate of progress should m:-ke possible the relaying, of all main line traclks by 1')69, and the installation of all serviceable recovered material on branch lines.

113. The expenditure durin', 1963-65 is estimated at 46%5. million pesos, as contrasted to the 939.6 million pesos in the proposed pro- Eram.

REC0 '1'9TDED -RA L LAYING PROGRAM

Already Additional Annroved 193 I 6 _96q 1963 r.111ions of Pesos)

New rails an,, fittings 119.3 - 120,0 140O0 P tti n.-r for relay in recovered m.aterial 1.1 16a5 18.0 11.0 Tie and chair nlates ,7 .4 .7 .8

Tot,al 122.1 20.9 172.7 1

,la,r- ne7 36.0 - 32.0 32.0

"lay recoverc^d materi 23.7' 17 .3 10.0 7. 0 Total 59.7 17.3 51.1 59.0

.i7 . .JJ± V~'..I' A1' II . LliI ± a ~fl Vy_aa - _* C_/ _,,> *ru.L~Q has been redeuced by the mission to 734i million pesos. A diversity of 4-rl ar -rc-1-ded Jin th; s a.mount.-

' VI I Cr i 7)4.V.,1 rnU.V-Y- -4< - -4 -UL-V-UU--

1*kJ .1L. DLLct_.d9 U. i.; hJi UjJUV 1u tA.iJII1LL UUL et U L iJ'J 1;11 .LLUI1 pfUU apytz- necessary to orovide sufficient ballast under ties, alon-; the shoulder,

nU LL theLn , S'ris -1,,her ULlere is now _L I U-±Ii UIt Uballas, so UU imirove ridingE and safety of the track anJ reduce wear and tear on rol- llniz stockY'.

121. 2. Sleepers. The proposed exoenditure is 'Dased on no-rmal y arly requirenentrs plus 'llin,- a backlo, in renewals a'sounting to some 5 million sleepers due to insu"fficient funds allocaLed in past few years. I I

HO-wever, since 1^o3 is wieii auvaricea Lte miss3lon esutlnaues t.raL, U LoIn basis of past performance an.' technical capacity expenditures should be limited to 31l4.L miilion pesos in the three years up to l95. TfLs i.Tould be a.slight reduiction in the Troposed amoount.

122. 3. larthworks. The items included under this heacdin-_ are thlose described as '"Reforzamiento de Terraplanes,'l etc. Justification for wor' on main line sections, such as Coatzacoalcos - Salinas Cruz, is accepDted. reveral lines in the nrogram, howrever, are included in the mission's list of lines (see Viability of Light Trafficked Lines) with a doubtful economic justification. These are:

Durango - Tepehuanes Durango - Felipe Pescador Allende - San Carlos Ajuno - Apatzingan

123. The mission therefore assunes t-at, before large ex-endittures are made on these lines, a thorough st cy idili be rade to ascertain if there is any justification for their continued operation. The mission's provision o. lb million pesos for earthw;orks compares I-4th 27.7 million nesos in the rro-posed urc'-rar.

124. 4. Labor cost of relatingr. A reduction in this item is called for in line wit-h the reduction in rai.ls and fittin-s pro-rarm. The -p-ro- portionate expendlture wculc be l1,7 million pesos instead of the uroooseQ 37Q million pesos.

125. 5. Pridrres anfl culverts. "he railw.ay's proposal is to renlace so-caller! t.e7norary brid-es (woo;3en pile trestles) wTith permmaent bridgees havin: concrete piers and steel rirders. Thile a replace.ient program is dIesirable, many of the temporary bridgoes are still in r'ood cond tion. If only the most urgently needed replncements are b;idgeted for 1963-65 period, the ex-.menditures during the -eriocd would be reduced from the proposed 79..5 million pesos to 3.9 million resos.

126. The miission recommends that the w-orks to be undertaken in the 1963-65 period should correspond as nearly as possible to thlose dles- cribed in Priorit-y A in the railwayts proposa's and that the less urgent TTorks described as Priorities B and C should be ohased over a fLNrt>er period fron 1966 onwards. lany of the reasons -iven for a Dhasinc out of t,he rail reav1n n, ropramm also aw ly to hridge and culvert construction.

127. 6. T-hracIk maintenance enuipment. The purcchase of electric welding eqn inment witho t, dou,-t; is neces sa:rV Th-3s wrill allow the wreldin- of long stretches of rail as well as rail ends, an-.-;ith the purchase of additionaql mechanizePd trrack FqOUinr.)-nt. Till ninduce better ridi ng track - 142 -

and reduce labor and maintenance costs substantially. The remainder of the larger . tem,s in the railway' s progran- are insuf _iciently_ described or justified, and the mission would suggest postponement until Ie nede'or tLhIe Trciases i's clearly and acc9ua>..elyy esbabli, the mission's nrovision of 30 million pesos for track mnaintenance equipment is co rsideraIly below-1 t,he -frouUrose' nr2ogra of P 3.6 Li-lllion pesos.

Iu. 7. T-, T-ove-ments to grades eVr' curves. Some o-f t'he workis incluled in the rail,-a-'s pro-rami are undioubtedlly needed ancl TTould imrprove operating efficiency, the-ir economic Justification nas not been demonstrated. The nission has included 33.1 Y,million pesos in its recolrerinled program to allotw lor tne hi-hest i;riority wort in this catetror2T to go fonrTard. The rail- ayl's proposals called ifor an expenqd i ture of 173.9 million pesos.

129. 8i. L incdening o'f (-auFe. Tihle eli.mination of J31U0gaug-e is rerardecl as a first , rioril,y project because of" the savings involved, the desira- bility of standlardi.ziniy raixay gaur!e, the el!imination o-m duplicate sets of equipment and facilities, en ?the eliminat' on of transshi ci_pr;-ts from standard gauge equia,ent to nerrori eaueeoui,.Pont an. vice versa. -e proposal to spend6 1Crmillion pesos, which the ni^.iscion accepts, includes twTU'Iosections of trnck;: d9 Vilor-r ters on the 'ri ental - Teziutlan line anrl 1'6 krilometers on t+he Pulebla - Cuatla line. E-ch of the projects is listedl to cost i,~ m-:Illion nesos. It is assumed thnat the expendi,t-u-re estimated for th^e 1963-65 period is not t;he entire estimated cost for the second ,project, for there i3s no reason to believe that it wTill cost less per route-kilometer than -the f>irs-t.

10. dlseuh,ere in thi s report the mission discusses the economnics of branch line operation an' concludjes there i5 nyoon' reason to bel-i'eve that the retention of the section Atecin-o-Cuatla is economically justified. Since there i-s consicleralle (doubt, 'hovTe'-jer, as to the viability of the Puehla - Atecinoo s*ction t!is aspect of the gau,-e-witdenin7 proposal Tq,ll,J kje we" -7orth a. :^urt'l-r investigation. The operatinr results of the (Or ental to Teziutlan branch indicate a -orobable deficit nosition, iut, there may b- stron7 reasons in favor of its continued on-ration. ,et'-v-r the final dec sio!, the economics of workinc} to standard-gauqe would increa-;e tile net revenue or clecrease thle section's deficit sufficiently to -iustify eeljen-iture on Tidenin tle existing 3'0" gauge track.

131. 9. Yard anA7 sidin- extensions. As arproimnatuely one-half of the Torkcs under t;is heading are classified as Priorities B and C, the mission has assumed that eve'n in the railwav's opinion t)eyhare not urgently needed. TI7he mission recominends, therefore, that only those projects go :orn.,ard thlati are now un.ler T-ay an-l ha-,e b!een arproved and those for which an economic juStification is -nroven. The remain er of pro,,ram should be further studied. If'an economiic justific-Tion can be shown, the ission surgests t'-le nrograrn shouldh,e extended over a p)er o- of somie -ix vyars. The mission has inclucled 1s )b0.5 millio^r in its rororam -,or 7yard an' siding extensions. - 43 -

132. Buildings. A great many projects under tJle headinr of 1_.eneral 1 Th1 1 ,,i,~ -si-v-, . c, .~ c-,, , +~ r -. rcccr-n, ,+ 'r.V 'ncs -i + cc, * a lengthenin- zf station platforms, replacen.e-it or impro"e-,ient o.t various structur, .-.^1 ,lO contribut,4-e 4- 4 ov.e a ~J,~'.u u UUL . I15.) ~cUIL U4. L.ul U US. CJ.iI U IO1. U V 2U 1L U 411 5.j'Z '), -'. efficiency. shile perhaps desirable over the lon', run, thaeyr are nct of

zuach an urgent nature thaUt thqie y canrotU be carrijedt_ UUUtover aL iUIkaeL period or held over until the railroad is more financially sound. The

i LS0L-Lion Ihlas Lncl u(3Vte'j -.n ltU pIUtIrUIIAI tnWit eU i 0L1.of Pscmllion IIL.±±I! for c const--uction, -as contrasted to Ps 96 rillion in the T rooosed pro,ram. __ -Lt _ L- t- he_ _e__ -' - _ ,1 - _ .t_r L LLI -Z :-- - O7-- UI- - - [) - Llle Uo aIJSC_LJSLU.r; LZ.1 IV U_,ALI I- --Uz ' ! IIFlL | 2 LUII Ur11 c1-111t-0,- CaL.1 L,,ir U_LJ b ,) wi-hich, the misssion endorses, to increase an(, speed technolo ,ical ,nd iginri-,erp-v trainir+ to T,hre unski_Lled T!orlSers. . sum Of rs 5 m ±ilon is to comonlete freight wJarehouse -rojects that have already been authorized and on whirc..h construcTion has comrnienced or is presently pro,rauimied.

133. lnr %.drninistrat--re Center at FruenavLsta, scheduled to co,st Ps 02> f1illion, has heen omitted entirely from the rission's reco-rnendations in view- of ti-he linitedt fundis avail-'le an-' the more ur.ent co-mpetitive needs 'or track, loconotives end rollin- stock iliic'n are essential to the bJasic functions of the railway. Also, sirce the present administrative oQ,ices in Puenavista :1taticn appear adlequate for a furth r num er of- years the mission consi ers this to te a lowv,riority pro,ject.

134. The ratluay's pro;eosa1 fo snend Ps 2iib. million on 7uor'-shops is includled( in the mission's recommended proa-r'i thoui U iTith some reserva- tions in reg;ard to the extensa\'e work conl emnlated at ti e old steam locomotive work-shlops ot .guasca1i entes, which accounts for Ps 120 million of the total. This urojhct ontails thei remodlelling of th- old steam locom' ive facilil;ies into a modern recl-mnation plant for maintenance of new items for ti-e s7rsten and for the manu'acturind- of certain items for the mechanical de--.art-ce1t, that can h,e i)roduced at a lesser cost tlan purch,ases from. refliar sunoliers. 'hile thie overnment has already provi(led! fu%nds amountin, to Ps 13.7 million as a first install- ment for this project, the miission sU" -. '5ts the aroject bUe re-scrutinized by the overnment so as to deterrini-* its e-,act b)enefits to tlhe railway anr' to the national eco.ony.

135. The railiay's proposal to spenct Ps 109.1 million on passenger stations is not in keeuiny -it> the ?eneral unprofitability of Oassenger operation. The nronosed expenditure has been reduced to Ps 25 million, ih7hich in thie mrission's oninion shoul' be sufficient to rn-eet essential m.odifications and irprove-ents of passenger station projec-i-s that have already been annroved or for -rbichimoney has alrea(dy been a-cvprouriated. Before aedbdtional large exoendidtures are undert,-1:en, the nission feels the ro erm--nt shoult-I re-ex-amine t,hpe 7,hole question of the future of uneconosnic pas3engvr train op-r.tJions ar-I establish a oolicy an-. pro- cedlure or t'-^ir nalasedl -t'-dr.aual. - 44 -

136. Miscellrneous Projects. There are a number of pro-ose.ls in the railway' s pro-7raJm, including Fome items that have a1reajy 'reen approved by the Oovernment, that do not fit i.n-t;o the rouvings a!ove. ITnortant proposals not previously covered include the follo^rin,g:

137. 1. Plant 'ilachinery and Tools. Tnis item relates to an imiense number of machine tools and pieces of plant. It was impossible for tile mission to examine the need -for each and every iterm and to decide whether or not any individual proposal is justified. However, from the length of the shoppimng list. presented the missson beLieves that tihe ra-iL- way authorities have substantially overestimated their inmmediate requirements. The mission has reduced the overall estimate by 50 percent, an arbitrrary but not imreasonal-le assumption. To this the mission added the small sum already authorized for 1Q63 and included Ps 57.9 million in its program, as cempared iTith Ps 7114 million in thie submitted Drograi:.

138. 2. 'Tork train eqdipment. Justification for an exnend-ture of Ps 15.1, million is accepted by the mission. The largiest component of this equipment is the acouisiti.on of ballast cars, whicn Trollld perm'it savings in spreading! ballast on the track and avjoid the necessity of using commercial houner cars that are in short supoly.

139. 3. Fight of wa,y. The mission suggests the railwiay's proposal of Ps 75,3 million can be reduiced to a level of Ps 57.5 million. This reco-vmendatio-n is based on Triority 4 an. 13 items in the railway' s program and those for wThich money has been anproved. It,ems under Priority C should be oeferred for later consideration as to their justification.

1_),. h. Ruel and water installations. The rail-ay' s proposal to spend Ps 26.9 mnillion apears justified to complete fuel and water installation,, now under construction and to m-2et future needs.

141. Ameniti.es. No chan-es ha7e been suggested in the railway's proposed expenditures on projects such as hosnitals (Ps 265 million) and hospital equipment (Ps 8 million), workers' houses (Ps 15.1 million), and the conversion of old cars into livin,7 quarters (Ps 21 million).

Program ,'or Ferrocarril del dacifico

1h2 The Pacifico has been completely r,ehabilitated in recent years. mainly throu,7h the assistance of a Bank loan of US','61 million in 1951h. The main line is in need of no substantial further imnrovement.

143 In view of this, the oresent three-year nrograr. has been assessed not only on its ovn merits 1but also compared with the -pro-ra,'s for similar waorks on ot.her TPyi can raiiwavs ivhieh general1v hnve oeen less wpelI endowred with modern equipment and track. - 45 -

144. The mission's recommencded program for the Paciflco totals Ps 296 million, or E surgested reduction of anproximately 50 percent below the program of ex-penditures submitted to the mission. Reductions are recomm-e:nded in all catecories except for the proposed purchase of freight cars which the mission concluded was fully justified. The lower investment total reflects mainly the missionts recommendations on passenger car nurchases, as previously discussed, and on the track work program as assessed below.

BOP.OSED V'-D RECuB1:TMED ITIAST71MF7TS) 1963-65 (millions of pesos)

1960-62 Program Recommendation

Rails a-nd fittings 13 55 3 n4II1_ 4E 1, 1, t An A. Locomotives (motors) 34 36 13 Dr~eight4 cars 1 05 Passenger cars 12 11 24 CN4-,ull4ings an,, ter,inals 9fc -II 3. Miscellaneous 17 100 23

Total 212 592 296

145. Track Vorks. Two projects to relay track on branch lines and passing loops are tne largest itcms under this heading.

146. 1. Re-layin7 Ameca and .'an riarcos )ranch Lines. Tne mission:s analysis of the viability of these lines (see Viability of LoTw Trafficked Lines) i:idicatcss that the Ameca and San Milarcos branches are essential parts of Ilexican rail7ays as a whole and their re-laying is economically necessary.

147. Tne num'oer of trains ru;-nin- over the oranches does not, in the mission's oninion, justify the use o.. new rails and f4ttings. ITith the extensive re-layinry prog7ram to be undertaken on tne riational Rail ways it shoould be possible to make availa le to these 1branches sufficient recovereat trackc material in suitable condition for this purpose. if necessary, preference may h)e r-iven to these branch lines over otlher lightly usecd lines which may have dou tful economic justification for their retention. The cost of the Ilobor in-olved in the re-laying program wnfould be Ps 4.2 million. - )16 -

14"8. 2. P.e-layinc PassingF Tracks. This r3roject iiIr nl r te+v re-laying of 173 orn. of traci iT lb. newT material at an estimated cost of Ps. .X45.6 million. In ri e-T of' t. small num'Oer of train cros- sings (or meets) that take place daily and the restricted lncalities iIn ToH,Ch t-hey are 1.iklely to o,c,cu the ms -i on fPeel c that +here i s i n- sufficient j ustification at present for such a comprehensive orog,ra ofP rc a' i n 7. T4- -i - ta4-ha 4- 4-rst-ed r; 4- be rest-uAd A 4o Ade termine exactl'y There and whichn passing traclks are the most urgently neede.-Ianc7 used. i eV oulcl 4h1eeWn e re-"ayed -V.LUit F-1Iood secondhil.Lnd rail, which w!ouildrbe much more econormical, and satisfactory because of luie slowv speedzOtt tin-of -I - - p-0---.n

14y. The mission has not therefore incLud-led any sum for the iDurchase of new rails and fittin,s, except the sum of 3.4 million pesos already approve; in the 1963 Buu get , for a nrum--ber of s mall pro 'ects, the most important of Twhich is the re-laying in 80 lbs. rail of 8 kilometers of bracK betrTeen ureniain and El R-efieg0o. rostbpUonement, oL t,he passlng loop project means that the estimited lahor cost of Ps 6.6 nillion is also exclude(i from the missionis noro-ram.

150. Exenditure of Ps 7.4 million on sleepers (t,ies) is f'or tne Ameca-'3an llarcos branch line. It is justif-ied on ti-e grourids tlhat this branch is in need of extensive tie renewals to ac6oouat,ely su'porT, the rail re-layin g prog7ram.

151. The justification or the sn.endinr of Ps 2.0 million to im.prove earthworks on the :'Ameca- ian -tarccs branch is accented, due to the necessity of strengtheni.n- and w4idening the poresent shoulders, as the embankmnnts are insufficient and unsta,;le and shoull be carried along w-ith the relaying of r ail and ties. Ps 2.6 rm)illion has been a,nroved in the 1963 hudret by the C.overnment .for the strengtl)ening and widening of embanlowŽnts at various locations on the main line, andt the mission has included a .further sum of Ps 4.4 miillion for continuing the work, especially in the mountainous areas where some present em- bankments are -unstal.le. The -Yideni,ng at thlese loc2tions wrill reduce track maintenance.

152. Pridaee and Culverts. The railvayts proposal to spend Ps 29.7 million covers the replacement of so-called temoorary bridges (wooden nile trestles) with nernanent (concrete and steel) brid-es. '1-ile such replicement is desirable there is no urgency to replace all of these temmo-ary lDridges as many are in .oood condition. Therefore, in view of the limitation of funds ancl the ur-,ency of other items the mission has allocated Ps 5.4 million "or this project so as to i-rnprove those temnorarT bridges that are in most urgent need of replacement. The mission feels t,his bridge replacenient Progra? shouldl be carried out on a lonr.-t-rmi basis and tVat the temnorary bridges should le replaced Twhen their 'raintenance costs exceerl the cost of new permanent constructions. - 4'7 -

i53. D ailasL. The raiwT,Tayls proposal to spena Ps i4.5 rrllion is included int_act in the mission's program. There is a present lack of ballast on the track shoulders on certain sections not inclu'2ed in the rehabilitation prograri, and consequently there is a need to increase ballast depthrs under ties in addition to the normai raising and tauqning of the track to offset ballast losses. This expenditure should reduce nmaintenance costs and wTear and tear on rolling stock.

154. Mechanical Equipment. tqpenditure of Ps 7.5 million on track maintenance equJDMent, as proposed, should lead to improved productivity and reduiced la7ror costs by the use of meehanical equipmrent. The proposed expenditure of i's 4.0 million on the conversion of cranes from steam to diesel powser and on the purchose of 20 ballast hopper cars is also included. in the mission's program.

155. UTork shopssan Machinery. The moalme car and- coach shop scheduled for improvement at a cost of Ps 9.0 million, was described in a con- sultinc- enC7incers' renort three years ago as adequate for present needs, and a -,round insoection by the mission confirmed this jucdgment. The mission believes a much sounder case w7ould seem to be needed to justify the mroject. The other proposals of the railwjay to ira,)nove wrorkshops, amountin- to Ps 7.7 million, are justified on the grounds that they shouldj reduCe repair costs and improve turn-arounc; time for equipment out of service. It -'as impossible for the mission to examine the im- mense number of mnChi.na tools in detail, ut based on a rou-h samnling the exoenditltre as oroposed seems just-ied exce')t for the ITmoalme workshop which shouli be li7ited. to proven essertw-ls. The mission's program includes Ps 7 million 'or machinzry, as contrasted to Ps 8.7 million proposed.

156. Terminals. The justificzition for spenrwin Ps 92.9 million on terminal± -uildin''s is accepted because of the need to comolete Torks already authorised ancl in planninf- for 111ich Government has J.r7en tentative anoroval. such as of GuadalaJara, I'azatlan and Nocales.

157. Amenities. The mission has accented provosed. expenditures on hosnitals .P u.6 million) and workers' ho-uses (Ps 17.6 million) as a manifestation of a lono;-standin- novqrnment policy. The nission w,rould point out, ho-wever, that the railway's proposed experditure of Ps 26.6 million on carro cars--the conversion of freight cars into living quarters--woulfl increase substantially the Tiace of this conversion nrogra- in l964-6r5 as compared to the amount a;r)roved vy Government for 1963, viz., Ps 3.2 million for the conversiori of 150 cars. In relation to the ('acifico's labor force and th,e propcrams of other rail-rays, the continuation of the 1963 rate Would annear to provide a reason-hle nro7rrl of car conversion. On thlis assum-ntion the mission has includcied Ps 9.6 million in its prorram, renresenting a continuation of the 1963 con-rerslon rate. This reduction is reflected in the miscellaneous category, (See table on page 46). - 48 - F.C. De! Sureste and F.C. 'unidos de Yucatan

158. The mission has reviewed the investment programs of the two inter- connected railways involved in service to the Yucatan Peninsula. The F.C. Del Sureste connects the National Railways with the Yucatan Railways. The F.C. Unidos de Yucatan consists of 206 route-kilometers of standard-gauge track linking the Port of Progreso, via Merida, with the F.C. aureste at Campeche, and a network of 496 route-kilometers of very old 3'0' gaJCEi tracks serving the outlying parts of the peninsula. The mission feels that there has not been sufficient analysis of the proper role of these raill..taysin Uhe total syste+m. AC the link bt..enth uatnpnisl and the remainder of the country the Sureste's function is bound up with the ecnnnmic devel onment of YiUGtan. and should be treated in this wider context. Nor, the mission believes, can its future be considered in isolation from that of the Unidos de Yucatan railway. The mission believes that the rehabilitation of the Sureste can be justified because it is an essential part of the transport system of the region. 159. The Sureste line at present is in a very unsatisfactory condition. Fori zpproxLu..atlK:_y haClf t lengt itulLU l thrl-ough swar.tp-lands wheret;lu Ie: track formation is waterlogged and unstable. The rails are 80 lb sections laid on timber sleepers. There are certain sections where curves are frequent and sharp, but on leaving the swamp areas there are considerable sections of straight track where high speeds could be attained if the rails were in good condition. Unfortunately the track is in a very poor condition. The highest permissible speed allowqed throughout the line is only 50 kph. The mission believes that the main cause of the deplorable state of the track may be found in the use of four-ailed diesel locomotives in full working order weighing 123 tons. An axle-load of over 30 tons on 80 lb .,±act, o,art:oul:uarliy o:' a wa-erloe roadibed, is consideredl to be excessive. 16. The programl for 1963-6, sbltdb teriwyauhrte,i the amount of Ps. 90.4 million, is designed merely to maintain the line in its present unsatisfactory condition and cannot be considered as an investment project suitable for consideration in the present context. In thie r-LL-s ion 's opi ni o n wh1at' is r-luer quorgifre is co,-eehnsv habilitation which should include works to improve drainage wherever this iL posibULe, pdal ULuJarly JJin aalva UVLso.a.Ll crp.l Ld Lls, a process which will generally involve complete track renewal. No estimate programl is available but-th 4 mission_-hasL--- incude- p-o- of costu of 01 suach'LLLJ1UUU 01 d.a JU0~1I1I L~ ~.d,.L±.O±euLi UIIU IIL.Lz):0LU1 IL1d. _LI1UL;UUtv1. piu- visionally a sum. of Ps. 200 million to provide for a first stage in the Sureste reab'ilitation. In -view of the delay -Vwhich inevitably must occur before 1965, it is strongly recommended that the present stock of 13 main-- line diesels should be exchanged wilh the Nacionales de Mexico for other locomotives of considerably lighter axle-load. 161. The mission recommends that serious consideration be given to the ma,r r of'- the reste ar.d erlstina sa r-u lines ofr the Unirz rdi Yucatan with the Nacionales de Mexico system, by which means administrative and a number of operational advantages gained. - h9 -

162. The narrowi-gauge lines of the Yucatan railaway present a separate problem. Tne railway administration sub.nitted two coinprehensive estimate; for the re-laying of the narrow-auge tracks in the existin- gauge (?s. 122 million) or for a re-lay anl w-idening to standard-gauge (Ps. 152 million) In LhE opinion of the mission the estimate for re-lajing to the narrow- gauge can be disreg-arded on the grouinds that the advantage of standard- gauige workin, woAld more than justify the additional Ps. 30 million which widening would cost. Howevar, no investaent in these lines should be carried out until a full investigation of the olace of railways in the Yucatan peninsula has been carried out.

163. Frei-ht traffic on the present narrow-gauge tracks is very light. Train services are mainly for passenger traffic which has been shoim as unprofitable at existing fare levels. To raise fares to an economic leveL woulci unloubtedly drive most of the passengers to the roads, of which there appear to be a growing network in the areas served by the narrow-,gauge railway lines. The mission bel eves, therefore, that there is no good economic or social reason for the continuance of the operation of the present 3t0t" gauge lines in the Yfucatan peninsula, and that when they have reached the end of their service lifA thev should ne picked un.

16) Tf the above recommenm,ations are follow1!ed, the missqin conceived it possible that the present working deficit of soi;e Ps. 30 million a year on the F-CG Uni-los rip Yuncatain mi,~ht be transformPd it arWrsmall onprat_onal surplus. Sich action would not, in the rnission's opinion, inflict any hardcishi non the peonlp nfc Yucantnn nnrl indierdi rni iht. rreat. to their ardant-age by improved through services between the peninsula and the rest of the

F.C. Sonora-?-½i C',J-l

±0 Pror-JsalsI i'or tIhe Sonora-Baj- ailay appear to 'e ,en-eraly acceptable and Justified to the mission. They are generally in accordance Ifith a co)nsultUitnI,, tenk-_neterls repo,tUa 1J95_17~f,ainC thte pr_o,~ralm, -was confirmedI by the mission in jisciisoins with the officials of the Secretariat of Cornmu-. nications an"u Transport anLu' of th1-e r3till,Jc*ay. tiowever, -6he ;isio w-Ould SUAg- gest one mnodification in the traclc works program. Tihe railway has requested Ps. 12.7 Jillionto replace timber trestles with concrete and steel bridgs. The -mission feels that s;ch replacement is of no great urgency, because there is n-o indicationU hat the timber bridges are not completely adequate and safe. Thie nission therefore suggests a 50 percent reduction in the railway's proposal in the bellef that this :rog-rarn could be spread safely over a loniger period.

166. Funds are required to conduct a special study to determine the future requirements; for the Rtiver Colorado bridge in relation to changes on the river channel and existing international agreements, and for 'the ultinate reconstruction of the bridae. The provisionally estimated cost of Ps. 13 million has been included in the program to meet the contingency that work may commence on the bridge. 50 -

167. The remainder of the requests are -enerally in li.e with the railway's consulting engineers' re-orrt and reco5Lmendations that tiLe re-laying of 170 kilometers of line with rail, ties and ballast; to- cgether with earthworks to stabilize roadbed, should iimprove operations and reduce costs. Purchase of track equipmant to mecilanize railway methods so as to speed up the installation of rail, ties and ballast will reduce maintenance costs. Also included in tlhe program is the completion of the diesel shop at Benjamriin Hill, the main repair terminal of this railway, along with plant and machinery for the plant. The repair shop has been under construction for several years dnd, when completed, will allow the railway to repair its motive power and equipment nore quickl-y, efficiently and economically.

168. Proposals for additional locomotives and rollinT stock, armounting to Ps. 17.6 million, represent a modest request for one additional yard locomotive, 6 flat cars, 6 gondolas. 8 tank cars, 13 passenr>er cars (10 second class, 3 first class), I,o camp cars and one line tractor for work train duty. By imorovinr the equipment position of the railway. which is short of thlese items or in need of their replacement, maintenance costs will be reduced and services imr,roved. The total of the recommended program comes to Ps. 136.9 million.

.0v. `hi ahua al Pacifico

16. )nly a snmall portlnr of railwJi misna _qiealv i ns ecte hv the is -i on. However, in discussions with the General 1Iranager of tile rail1way anl officials at the Mf!inistry of Commnications arri Transport, together with a reveaw of the reco=iendations made by a group of con- sii i rn Jnineers in 1958, the was able,ission to form a iudgment on the main eleriE;nts of this railway's proposed program. The mission's s-w.nste7 totasl,proe c. 2017 C. -n 1 ortI a rcdi,dut o-nf Ps. 100 7 million in tle program submitted. The mission considers tihat better uti'izatio~n, ey-;~ ~ L.dsexisting~ U~~il locom,otiveL.J~JIII'J'.~.L~A& U±V ~ ~stocrk, ~ asd.~J argueducLi.L.L Jn 'heuLV discussion1LUl O~IDDL - L of (lieselization earlier in tthe report, could obviate the need for the 15[~ nAA, +4 nrdiil nn i- nra`A-ne diesels requested Por t - .i-rva lrnway. th-ie saving in invest-nent funds would amount to Ps. 39.5 million. Tne largest reduction recomm;ended in th~e rallway' s progra, conJcernis 4.1- 4rpsao Hn Ps. 163.5 million on rails and fittings. The railway plans to re-lay Uht Wh1Ule UL teUof secti-on fLrom-aLd.a JuntUaun.a tAo C.LudaU UcJuarez, on tuhe lexiXco- U.S. border, in new 80 lb. material. This line was studied in 1952 and in 19v8 b~' -the~ L&~±yrailwUs csui t e,insL[ who foU[IU thatL itU Was Ue workin- at a deficit and that the greater portion of the revenue earned on th-le eUcio.n_Ull Was cU1onfin to Limber orig,inating in 'th1e area bet-ween Madera and Mata Ortiz. If it were not for this timber traffic there would appear to be very slighF JustifIc-tion for -the ontinued operation of the line. The Nacionales de Mexico line through Chihuahua carries the buik of all freight to and from Ciudad Juarez. Tne closure oI the - 51 - La Junta-Jiiarez line woul have very l-ttle eff'ect on international trade and traffic. The consultin, e.ngineers recommend a minimuri program of rehabilitation for the Chitnuahua al Paciiico line with which the mission agrees. It provides for only 200 kms. of niew material and making good to the best possible externt of' tine remainder of tthe line. The mission's estimate is based on that recommendation witi1 total expenditures of Ps. 67 million resulting in a reduction of Ps. 96.5 million in the total progrram. Tre mission also recommends that a thorougn study should be !miade of the economic and social justification, if any, for tlhe continued onr^rtion of the nhole len-th of the La Junta-Ciuda'] Juarez line before a final ro.rmitment %f e.L)-nditure is made on any part of it.

170, To carry out even the minimum programr of rail re-lay-Ln, however, most likelyTwill require more labor expense than the Ps. 2 million esti- nmate in the railway's proposal. Thle mission estimates that Ps. 8.3 million is a more reasonable amount. Other elements of t'he railway's track work pro7.rai-i appear to be sound, requiring an additional Ps. 54.3 million for ballast, sleepers, briJges ai-rd culverts, track maintenance equipment, improvements to grades and curves, etc. She provision for additional mechanical track equipment will allow the modernization of track maintenance methols and consequently increase efficiency and output and reduce labor costs.

171. The railway's plans to acquire oassenger and frei,+1ht cars appears to be sound. The purchase of 400 box cars anrd 100 gondolas, at a cost o' Ps. 60.5 million, is necessary to replace worn-out eouipments. The acquisition of 10 first-class coaches, 10 pullman cars, an(d two dining cars, all of which would be --econdhland, is necessary so as to replace worn-out equ-ipmn,,nt whhich -s expensive to rnaintain and to meet the demands resulting from t,ei nrew link to th'e Pacific coast: t'ois exnpncditure on passenger cars will amount to Ps. 5.5 million. 172. Records shlow the exi;tina locomotive stock to be 30 main-line *ii-esel- arl yrard T: - -'!' ;SKn cons-,i J- 'at .jiit h propr utilization tne present stock is sufficient to handle all traffic, xYisting nrc1 notf=nti l, on the C,hihuanhua al Pacifino tin to th,e end of 1965. If the !mountain link to the Pacific, which was opened at the end of 1961, provies to goneratetnore trafficr than is IjOW esti!oated, a full justificntion for the piircnase of additional locomotives should then be pre-parej bJh t*lve rai 1T-rn-ar nii+bv'soine

173. T'1-, Af,- rio has vreno -on tor~ question+CY the11 jutifica' t*iocn for~ pro-r. posed expenditares on passenger stations (Ps. 0.6 million), workers' houses (Pse 3.3 r ,illin) andC ene-[la.).. (Ps. 2 Aill.ioU - 52 - F.C. Coahuila y Zacatecas

174. The most desirable approach to this railway, in the :aiss±uu' S opinion, would be to amalgamate it with the Nacionales de .;exico and to widen the present narrow-gauge track to standard gauge. However, since much of its steam locomotive power has been replaced by the recent acquisition of narrow-gauge diesel locomotives, the mission assumes that a decision has alreadj been taken to perpetuate the 3'0" gauge.

175. The tthree-year investment programn amounts to Ps. 19.8 million, of which Ps. 15.2 million is for track re-laying, which is badly needed due to light rail and deteriorated t;ies. The remainder is made up of Ps. 2.4 million for general buildings, houses, workshops, arid for out- standing payments on a recently purchased third diesel locomotive and for hO units of rolling stock. The orogram as submitted appears necessary for the maintenance of the property which is primarily used for the carriage of some 200,000 tons of minerals annually.

New Constriction Projects

176. Four newl construction projects were presenited to tine mission by the Secretariat of Puiblic Works. The- are reviewed below:

177. Esperanza-Cordoba Re-alignment. On the face of it, there appears to be an excelier-T, case for this projact t, improve the aligrment of the ex4stirn railway. The existin" line ascends 4,300 feet in a distance of ?5 miles throu-h 14 tunnels and uith xiaximim r-raies of 4.10 percent. Detai.ls of the proposed i.nproviemen-. are not- available out on the reasonable assumption that it would substantially red-uce operating costs on this extremely difficult section, the mission has accepted the project as economically justifiable. However, this should be confirmed by the Goverrt- ment. The first staze of the project, costing Ps. 90 milli-on. is scheduled for the period under consideration. The total cost of the project is estimated at Ps. 1Vj5 million.

1L78. Maexico-Acapulco. first stage. AcaDulco is p)erhaDs the last important center in Mexico unconnected to the rest of tne countryr by rail. The proiect under consideration here is designated as the first stage of an ultimate line fromn Mexico City to Acapulco. Whether or not a railway to Acanailno Gan ever be lnstified on economic grounds. thp mission is agreed that this first stage of construction, to cost Ps. 165 million, appears to be -wl1 corceivnd nnd locrated- 1 vy replacing a considerable nortion of the 3'0"-gauge line from Mexico (San Lazaro) through Los Reyes toward C'zautla, as well as the h 8<"-gauge l_ne from Julia to Cuernavzaca, i1 should substantially increase operating efficiency at the same time as substaltiallyr reduciing anintenan ce costs. The r.ission accepts the justification for this stage of the Acapulco project, with the proviso that any on'tl nuaiin of th-,e line towa rd.s Acapullco sh1-.ould' not deviate or caase aabfan= donment of t'ie existing alignment between Cuernavaca and Iguala. The - 53 -

stations between thesc points on the Julia-Balsas branch arC ti-he origin and destination of substartial volumes of long-distance traffic wrnich produces importar,t revenue to the Niacionales de .Iexico railway.

179. Mexico-Queretaro Project. the mission has been unable to resolve certain quesiorjs about Jhe sections of the line affected and their future, but nevertheless it is impressed with some of thne possible operational advantages and has provisionally included the amount of Ps. 50 million for the project. At the tir,o of the mission's visit, the Secretariat of Public Works had not discussed the project witn tihe iNaciona1es de ,iexico, th-e rail- - whichwa -would be affected by the proposal. The miissionls endorse.lent of the project is subject to a thorough study of the question by all the parties c.:ncerned before any money is spen?t. The tsork to be undertaken involves the reconstruction of the section Huehuetoca to Prieto on Track A between `uehnetoca an; La Grico7, an.. on Lhe construction uf a connecting liTJn oet,Tr&c^n Prieto on Track A ard n--carndon on 7rack 3.

180. 1uadala-ara-Saltillo Short Cut. The first state of this route shortening is estimated to cost Ps. 1l0 million, out of a total estimated cost of Ps. 315 million. It involves the building of a new line to short cut exist1in- lines whic)-i must be continued in operation, and will result in the tronsfer of considerable traffic from existing lines without in any way reducing their maintenance costs. Total ooeration costs would increase because of the costs of maintenance, dcpreciation, and interest charges on the capital cost of t ne;r.ew lines. In addition a new road link bletueen these toijns is under construction. The mission therefore would serioulsly question the economir value of this )roject and would sug- nest that the invpstmt-nt funds involved migiht be pDut to better use else- ,here. - 514 -

Investment Planning

181. The nission believes there is a case for the ultimate .anaI&t;niof of the .exican railways into one, or at the most, two systemrs. mie Sonora- Baja California, for example, is really a continuation of the Del Paclfico. Similarly, the Sureste and Unidos de Yucatan are but extensions of the Nacionales de jiexico system. The existing spread of authority results in a duplication of staff, facilities, stores of spare parts, etc., as well as lack of uniformity in equipment purchased.

182. As the situation now stands, the Nacionales and Del Pacifico each prepares its own investment program. Those are subject only to tec.hrnical scrutiny by the Secretariat of Communications and Transport (SCT), before their sub'lission to the Secretariat of the President, the over-all inrestment allocating authority which may accept or reject in whole or part the program' submitted. The progra-n for the other five government- owned railwa-ys are first screened by the SCT before transmission to the higher aithority.

183. The planning, location, desi,n, preparat-ion of cost estimates, economic justification and the supervision of the construction of new lines, or extensions to existing open lines, is initiated and carried out by the Secretariat of Public Works (SOP), subject to the ap2roval of the Secretariat of the President. To the mission, there seemed to be too much dispersion of a-;thority between t'ic SOP, the SUT and the railway administrations ti?e:nselves, tThich may not be consulted in the early stages of planning.

154. SUT anoroval is required before a railway branch line can be closect by the Nacionales -e Mexico and Del Pacifico railways. The SCT, in addition to its safety and technical supervision of the country's railways, f:nnrnvp or determines rntes and fares on the railwavs. highways and on internal air services as well as handling charges at the ports. It does notu trat1spiort prices, howevernT an instru.rnt of alloratinsm traffic to whiatever mnedium is t.-se v;iost econo.nical in ter-is of cost and service.

185. A consequence of to-te dispersion of authority, it seenis to the miss.on,r is t.hat. investup nt decisions and Tpraan; decisions are nf'ten unrelated. The situation is not helped by the absence of a clearly defined and centrally controlled transport policy. Although tAe œinister of Transport acts as a link between the difIerent railways and thus brings some ifrniy in t1he V'-il.Tnir sctorv, li- .. ry d-Lror m,rs+ i z nr). hi responsibility other than as the controlling authority over the traffic ll C; n, r +1-,~ hn~,,.r h;-res h-ie 1 h- Anr+ on c-rc+h -, , . no+ ;n raii_ + i nr gross misallocation of resources since transport needs, particularly for hi-ghwl,s .rer so gra n the earlier sta-ges of conomic-- J devel op.,ent, -~11'U ;, V~L Z:J. C)J r -__d.L U 4.1 L ut I -LtJ. ~ D.~C%6 K- *iI1.L, U~ V ~WIJj.Ji oLALU, the mission feels there is now a clear need to formulate a transport p o l c,-) and tLo crealte a mlore logical system ULhan that~LnowV inU useU forJ thei development of transport. The answer wouid appear to De tne creation of a Centralized Transport Planning Authority.

186. iWhile the mission can see the logic particularly for a centralized railway authority it appreciates that historical and legal forces prevent an easy and simple rationalization. The existence of average salaries on the Del Pacifico, for example, which are approximately 50 percent to 100 percent high-ier than those on the other railways, would cause serious financial problems if the higher average beca:ie general. The 7mission believes, hoiw,ever, there may be a case for proceeding in steps toward an ultimate amalgal:ation into one or two syrstems. The iiission recommends, therefore, that the Guovernment should institute an enquiry into the legal and administrative re-organization necessary to begin the process of railway rationalization.

Foreinr Exchan:- e Component of the Program

187. Although the mission's estiulates of future operating results indicate an improvement in the railways' ability to generate cash resources, up to 1965 it will be sufficient to lake only a nominal contribution towards the cost of t'he recomienried investme 't progra.ns. Because part of the railway program of necessity wuill be fitnanced frorn borrowed funds and by suppliers' credits, the mission has iaade an esti,iate of the foreign excnange corriponeut of its recommended program for railways, in ter-,s of the expected phasing of thle inve3tments ancd the total. As thie followin..., table show-s, the total foreign exchange over the three years is estimated at Ps 1,544 million, of ;hllclh Ps 1,284 mlillion is for the Nacionales de MIexico. Full details of the particular prog rams are given in t!ie Apperndix Tables. In assessing the foreign exchange component of the program, the mission has made the followin7 assumptions in regard to specific portions of the program.

FOREIGN EXCHAINGE COPONENT OF RAILVTAY PiiOGiTiA (m i I ions of -).

Sec-re taria de Comuni- Secretaria Natcionales c --7c-ones y d Ohrq!7 de Mlexico Pacifico Transportes P.ublicas Total

FTEl6877r---ran~ ~~b_ 77t7 43 )h5 853 196)J 1,237 112 205 120 1,b74 1I65 1,001 1.C7 -26 i),n 1, 7h Total 2,926 9 77 m3 0 Foreign exchange Co -ioonentf iPn '7 ~Th07 .43J/7 I - 4- 1964 556 17 36 40 649 1965 319 30 75 L 71 Total 11 7,28h7 i0. Lra ck iIateria1 and F itti.gLs-. TheL ; oLLJoni u n derstanuds thUUatd thle output of rails and fitting- fron Mexican steelworks iTill be insufficient to supply all the rail'ays' require-nents and, in particular , that the heavier rail--i.e., 112 lbs to the yard--is not rolled in the country. A rouhri esti.:i -te has been made, therefore, that. 50 percent of requirements of rails and fittings would need to be imported to meet the large pro4ram-s of t'ne i,,acioneies and Cnihuahua al racifico railways, and for new con- structtion3.

189. Track -aintennnce equipment. All requirements assun-ed to be purchased abroai.

190. Locomotives. All requirements assumed to be purchased abroad.

I91. Motnozs for locomotives. All requirements assumed to be purchased abroad.

192. Pa,senger cars. All requirements assumed to be purchased abroad, excepting express ai,d baggage cars which can now be manufactured in Mexico.

193. Freighit cars. All requirements to be n.anufactured in 14exico.

19)4. Passenger rail-cars. The 10 rail-cars fcr tne Nacionales de iexico are expected to be imported.

195. i-jork train equipment. Ballas-t cars can be manufactured in MIexico. Other specialized equipment is included under foreign excnange require-- inents.

196. Machine tools. All requirements assumed to be imnported.

197. Telecorm,unication equipment. The foreign exchange component of this item is in acc,rdance wlth the estimate submitted by the Nacionales de Mexico.

198. Hoscital equiijpment. T'he rnission has no knouledge of the imanufac- ture of hzospital eauipment in Mexico. All requirements assumed to be imiported.

BAIL'4AY rz L'! ,1_o ANiD ACCO-UINTS

199. The mission's recommended investmnent program for the railway, just outlined. was conceived only after careful analysis of the causes of unsatisfactory financial results of railway operation. In 1961, the last year f'or ihich full accounts were ava i1aihle; at. tl- time of the minsion' ; visit, the total deficit of the Government-controlled railways was some Ps 5on rmillion, or at current prices somne forty t.i nes that of 1952. Over the ten years 1952-61 the total annual deficits amount to approximately Ps 2.8 billion. The oublished results for each railway are shown on the following page.

200. Although these recorded financial deficits, -vwhich show no sign of decreasirg, are a reflection of a s rious situation, tne 3iission stresses that they should not be taken, a priori, as a .measure of the real economic viability of' either the system as a whole or any one railway in particular. loth rc,veniies and expenditures are distorted by th-ie effects of' "social ser-ice" an. other considorations. "o,Oe roilwayrs 'a3e provision in their accounts for in.erest payable to t>he Government on a part of the w.tole of their capital, others do not. Depreciation of fixed assets is calculated properly in solne cases; in others it is based on incomplete data, or fixed arbitrarily, or even disregarded completely. As a result the accounts of the separate railways are not immediately comparable and are not a "true" reflection of the real state of affairs. However, sirce the figures shown in the following table are those piiblished officially by the Government for the benefit of tne quzblic and thie rail.vays' e.,iployees t,e :mission examined the- first.

201. '{owever, since it has been decided that tile -,ain "fexican railways will be publicly ow:-ned, wuitlh responsibilities to thle nation as a wtuole, the raillwa- adninistration cannot be the sole arbiter as to which services tley -ill irovi ~e or tne rates and ares to be charged for these servic.es. As a result of t'heir oSligations to provide particular services, to charge special rates, arid to undertake certain expend-tures on medical and other benefits for thEir employees which tney would not do if they operated as private Drofit-maximizins firis; theyv s f i nan cia1 deficits wh ich nnist be s-uet, in one way or another, from tiie Government's general revenues.

202. The :ianner in iwhich these losses are paid and accounted for hnas a profourd effect not only on the -public's iJaa-e of railway onerating efficiency and the role they should play in the futuJre transport scene, but also on the initi.tive, ent-usiasm, discipline and m-ra*le of ra 1way adiiinistrators and wiorKers. To the uninformed, thle G1ovc-rnmenit's underwriting oiilosses, even where theyJ mnay be incurred in purwsuance of Government policy, may seem like a diversion of valaable pluolic funds to rewari an.Ierpetuate inefficiency. For this reason an,., more important', to ersure tlt the rail-ways obtain a "fair" share of the funds allocated for inetret in trasport, t :nissio tronly advocates adoption of the princijples jThich thie Irturnational UJnion of Railways (U.I.R.) has drawn up for thqe "nr-alization" of G.-overnmen-t owned railway accounts.

203. Thi v,rocc&,rc,i-1i-4 is in Vie process of aduopion by many West Euro-oean 'tate Railway.s, involves the preparation of railway accounts in .hach aornropriate adjustmr,nt- are m,ade by eit"her adding to income or de- du,ting from expenmiture aopropriate anounts for extra costs, revenues lost, subsi L_C3 id or grti1ts g-iven which result from the special 'I-,TlT-i:-L;I.iTG J1PPL13J5E (C,: ELITICIT13) CJT IUXDICX, G9'1V-27LT CC1iTh0LLLD PJaLWAY,, (1952-61)-i (Gonearest Ps. million)

;oahuila Chihuahua Sonora _ Unios Totlal y al Del tlacionales Baja de Tot;al Percentage of Year zacatecas Facifico Facifico do, iUe;ico California Cureste Yucatan Deficits Gross Revenues

95.- 2 (5) 1 (17) 12 (2) (3) (12) 1.7 1953 1 (6) (39) (67) 9 (3) (3) (1U8) 10. 8

1954 1 (lo) (55) (1OG) 4 (3N) (5) (170) 15.-5 lf-/55 0 (17) (62) (199) 11 (2) () (2175) 23.-I

1956 0 (13) (56) (175) 10 (15) (5) (256) 24.7

1957 (1) (14) (39) (184) 5 (1I-) () (249) 1]7.8f 1958 (') (22) (74) (373) 1 (14) (E) (4'91) 35.-6

1959 (1) (20) (69) (334) 0 (19) (13) (4;6) 3fl.0

1960 (1) (15) (35) (219) (2) ('5) (1L4) (3(1) 16.2?

1961 0 (23) (76) (377) (2(15) (14t) (507) 28.4 Total Def) cits 0 (145) (506) (2047) 45 (,) ('76) (28' 5) 21.0

jr; O;e deta.led operat3ng results for each rai' fy are shown f'or the -ast seven ycears in Appendices Nos.22-27

Žyote: Fi-ures f-)r Nacionales de Mexico inclucle F. C. exicano 1952.*60; and those for Chi'huaI-ua al Pacifico include F. C. Kansas City, h.;exLco y Oriente and F. C.. IToreste de Mexico (19 52-54-) . - 59 - position of the railways as public enterprises, and by the charging to incomne of renewal allowances, based on the expected service life, of tlhe assets to be replaced at replacement costs.

20LI. In the lIexican case, this would involve the Government paying what is known as "constructive revenue" (rather than the term "1subsidy'), a slun each year equivalent to:

a) the revenue losses incurred because of specific Government tar:iff policy decisions plus

b) the losses incurred in the ooeration and maintenance of branch- lines and lightly used main-line sections whnich, for reasons of Government policy, the railway cannot abandon, plus

c) the amount by which total revenue from passenger train working, including baggage, mail and express services, falls short of the direct operating costs involved in the provision of those services which the Government will not allow the railwav to terminate, plus

d) the extra worlking costs incurred by the railuaays above those payable bv urivate employers because of narticular welfare and labor policies imposed upon them.

205. Thle proper assessment of tl)ese reveinues and costs must include nprovision for deprec_iation, calcul e i n rai.nal and consistent manner reflecting a true evaluation in financial terms of the wear and tear of the assets.

2½>. In aid'ition to rec.-n--enAi t.iat the -cou,-ts ofra tr4- - te ra~ lwa-s s:oul`d be "normalized" on the lines proposed by the U.I.R., the LiLssion al-o rec enL,Lnndsthlat tUe presert efLIUOrt-O to produce propeer' Bal- ance Sheets for the Sonora-Baja California and Sureste Railways should be encournaged and bkroug',to completion as soon as pnossible. fnce is is done it will then be possible to produce a Consolidated Balance Sheet for all of the Government railways, supporte by 1financial statements giving details of all gross capital investment, depreciation and the cur- rerntu value of the assets. ThM,lisio- f4-urther- reohlnl 4hat uncle- the4 ~U U 04V ~wu~U1it~ ~ U~ -IIt- WILa _LULI.. J .L UI Ufl_.L I. 0UJI.i'ZeIiUZ) ULId. ULJUt-± UlUt heading "Investments" in this balance sheet provision should be made for un comlLr ete ter.s-on V.s undrtaukluernJ bi-y tUhe S)ecretdaria f ULiLc.L Works.

207. For t;ie "normalization" process there sh1ould be little difficulty in eVad.inUUWb Ullte Uo'sts anlU services WinVol-ved. The lVa.ionales de Mexico and the Del Pacifico alreadyZ keep efficiently a massive amount of detailed statistical information, not all of wnich is published. - 60 -

208. This normalization of the accounts would merely present in a logical and clear manner the value of the services rendered to and by the railtways, the purposes of the Government payments, and identify the uses to weLich the funds were applied. The rearrangement should dispel some of the confusion and misunderstanding which seem to surro-und the finances of MIexico's railways.

RZARRAiEiG.5:ED T OF CASHI TRANSACTIONS, 1961 (millions of pesos)

Position as now Position published in as _accounts Normalized

Pan,erent b-r GDvernment to railways:

(a) For operatIn;z deficit 507.4 381.9 (b) As constructive revenue - 561.7 (c) For carriage of mails - 35.6

507.4 979.2

(d) Less cash provided from rail:.a1r resources-deDreciation 16)i.9 L12.0

___ I5 67.2

P'4vrPnt, hv rai Iavs to CoNrPvnmPnt

(e) Interest charges -h5U3C7nn

Net cash supoo,rt vr.- Government fund{ , 1 07. 2 1 07.2'

209. In a later section, a summary of results of railwjay operation for 1961 is presentedl in "nor.nalized" fo.rm, and in ApUpendix Tables 2~ t 29 th-e actual and estimated operating results for 1961 to 1965 are shown, nornmali z'edA on- ,,-nnm,7 i '7caA Th, he4 a on ...h4,4oh *ke ,r.-; rt r"r i &e_ -tion allowances have been calculated will be explained in detail here- after.*

Anal.w>sis of '5ai-;'--, Deficit+s

.fl.JCL..0 .3 '31 2~~ 112 4-~L0y 4

20. Mile perslsent upwardU1JWdJ. u trendUIej in±1 4theU1. sizeZ ofLJ.bI the Loua-lUU1 defic.Li,~±.L,W1~ -whiLc.h is heavily weighted by the Nacionales de Mexico figures, has been slowed do-wn- onl-y when increases in rates and farUs were belatedly made or when spurts of traffic increases took place. The two inost important freight tarifl changes of the last 10 years were in 1952 andi959, wnen increases of 22 percent average and 34 percent average were made on the Nacionales de rexico. Between 1956-59 the Del Pacifico progressively raised its tariff levels, but because of its basically higher cost structure (mainly average wage levels) these induced road competition for particular traffics and the railway consequently reduced a selected numoer of rates to recapture the lost traffic. Other than on the Del Pacifico and the Jnidos de Yucatan passenger fares have been kept at thle low level of 1952 despite the general rise in prices in iœexico.

211. Thus it would appear that a basic cause of the railwayst increasing deficit, considering that productivity per unit of manpower, fuel and equipment on the railways has increased and total traffic has grown in most cases, is that revenue per unit of traffic has lagged behind the money costs of labor, materials and equipment. Also particular expenses may have increased which were either not a charge in the earlier years, or were a small factor in the totals aad have grown in importance (e.g., "frin.e" benefits). In an attenpt to identify more specifically the main factors in the increasing deficit position, the mission carried out an analysis of revenue and expenditures durinig the past decade (see table on following page). Frorm the filgures it can be seen that, as compared witlh 1952. tne railways successfully absorbed increased costs of PS. 1.007 million in 1961, as follows (in millions of pesos):

By increasing traffic : 286

By increasinr. tariffs : 512

By decreasing expenses: 20)

Total 1,007

212. Total costs, however, were Ps. l,"02 million higher. As a result t}he -et annu-al deficit- increased by Ps.* 4 llion. alary ardLu wagc7lin- creases accountec1 for only 43 percent of the increase in expenditure. The remainder of te increase was due primarily to causes over which -the railways have little control. It is important to observe that the increase in interest a-nd -le:-reciation charges app.2ars tko hlave bUeen -ustifi 41ed by 4the increas-ed caracity to r.ove traf_iic and by the econcmies which have resulted fro -, tI 4^'r > ..l 1 haD o^xiC L el* -C lvco-,iotives..LOoIV L, _ . Desi"e;1J) . U -unoese[~ obv-i)uslQyU LJU.V I conzrten-~ 'Ui daole effort;s on tho3 ?art 47 ra LiWaw lany e.;nts to nrcrease efficiency- of o e)rat-ions, t' 4Sis ear 'U!'at revencues 1-,ave lagg-~eud in tiEeUC face ofin- creasing costs.

213. The mission ts analysis of railway costs and revenues indicates that ifthe railwa7s were to operate on the strict business principles of abandoning all unprofitable services, and if they were to provide social Uene'its for! ther eriployees equal to tlosL legally required in the private - 62 -

Analysis of increase in Deficit Position All ,1exicanGovernment Railways 1952 - 1961

(mi'lions of pesos)

1. Total ODeratung, Revenue - 1952 952 Increa3e in revenue attributable tc greater traf`ic in 1961 286 A-mount att;ributable to J.reic;,bt rate increases 1952-196L 499 Amount attributable to passenger fare incr :tases 1952-1961 13 Total OperatLng Revenue- 1961 1,750

2. Total Oueratinr-) Expenditure - 1952 964 .,stimated cusL of noving,! additional traffica/ in 1961 127 Increase in wa-e bill attriDut:able to wage increases between 1952-1961b/ 635 Increase in prices of fuel 57 Increase in pension pa,m,ents 162 Increazse in fre_½hs`nt car rent rates 123 Addittioral interest charces on n3w borrowine 95 Addii.ional deporeciation c--hrwes anr- other p rice increas3es on ater-a:ls, etc. 285

Total Operatirog Lxpendit.re-l961 5 7hsslimingr T- opnratingy circu :nAstances+n ) 2,),66 3=~~~~~~~~~~~~ 0raiV,4s -ee- " -ol -.tevioi +- cm1 o(O - Y)i-,- n Pc-c,-.- + 7 I Savjin-s :ttribuitable to diosolization 1952-1961 209

4. 'T'et Y)peratIng D)eficit - 1,'61 (actual) - 507

5. Net ODerating Deficit - 1952 (actual) 12

5. Increase in i,et Oieratin. Doficit bet-een 1952-1962 495

+~~4, ~i ,---A --. - f a/ mliseJti:nate i^ based)Z oni 175 cos's an-' assum.es tiia' in tha' year approximately Lho percent of total costs were directly variaole with t e volume-- ofrapc handled.

b/ Increase ln wage billuis5 calculated on the labor force emiployed in 1952. The pro;j,ressive r.duction in the number of men employed in the years 1952-1961 is taken as a credit under savin-s attributable to dieselization. - 63 -

sector, they still would be unable to make an operating profit under existing rates and fares. Furthermore, the mission believes that adjust- ments in the railways' rates and tariffs schedule are overdue. The prob- lemn of adjusting the.m is closely related to Government's underwriting of losses--in reality payment for services rendered--which are reflected as part of the railways' operating results.

21L. The ar.ument was frequently advanced to the mission that so long as the railways operate efficiently enough so as to keep the real cost of tr.-r:s:ort ir. 'exico lo.- (as indeed, it L., jhen compared miitri most other cc ntries in a si l..r davelo,nental stage), then tneir econcric value to the countr-r is the real test, whatever the actual rates and fares charged may be or the -method by which apparent financial deficits in th-ir accounts are financed. This belief may have merit wheere the allocation of resources to transportation sub-sectors is taken in the full awareness of the real costs involvpd. Rut where the rea1 osts of transport are not taken into corsideration, there is the danger of serious misallocation of resouresp Ruit even if the railwayrs were to be judged primarily as a social service, with no consideration of their productive function. the argumrents in favnr of ipera-.in; with rational budgets would not be altered. In fact, the mission believes the rail-iays can be trans- formed into a se1f-supporting syste.m with no loss in ±hoi-' services to the nation. It is probably impossible to completely bring about all the riq;i r::1 rhnngcs in; railway policy qri+h; r, +h s hrtn+ span ofP the nn; nr under review. But the adoption of the mission's recommendations for rate anrl fare increaseso together wl;h other actions to improve and correctly -~ UL1~± VVL WI ~ YI±~± CL ~ ~ O0LV~V U LI portray the railway's financial position, could result in a balanced budget by the final year of tne program. After making proper pro-vIsilon for depreciation, the railways should then be in a position to at least 1finance all routine replacement purchases andU coisbructOnS.

Th faiEal-y uosu Stuueture

21g. The IssIon's analysis of freight and passenger operations indicat3s that if all cost;s were correctly apportioned to each of the services, then the major system,, the Nacionales de Mexico, could be regarded as a viabie enterprise as a purely freight service. However, the surplus of Ps. 175 mlllion of freight train operations is insufficient to meet a loss of Ps. 440 million on passenger services. Furthermore, measures to reduce passenger services, even when added to the recommended increase in fares, will not generate enough revenue to cover the full cost of passenger service operations.

216. Thus, in analyzing the present cost structure of the railways, the mission believes it is essential to make a realistic division of costs between freight and passenger services. it is the mission's assumption that frei,ht rates will have to include an element to cover the passenger portion of the operatinsv and maintenance costs of plant, equipment and - 64 -

staff 1sed jointly with freight services, and whieh are necessary for freight operations and would continue to be, if all passenger services were abandoned. In adldition, all the nonvariable indirect costs of -aragenent, supervision, accouinting, stock-keeper and the like must be borne by frei-ht users. But drect and variable passeger train o perational costs are identifiable and should not be charged to freight sh11ippers on at, least tuwo groundAs--tU_at of equiity andu tl-ia' of t'ne rail-1 way's potential competitive ability. Thus in the mission's analysis freig,ht costs are i-ade up of the followijng three elements:

217* Variable fCetTht operatin cost: those items of exjpenditure, incurred solely on behalf oF freist traffic, wilich fluctuate in direct proportion to 'Uie volumie ofitraffic hiandled. Yard and terminaIl costs, origin and destination, and depreciation of loconotives and rolling stocku are iicludedi.

218. Total frei--ht operating cost: f-ully distributed cost, freight service only, excluding interest charges on capital employed.

219. Total freight cost: including interest charges and the passenger proportion of joint passenger and freight costs. It is assumed that, at best, passenger revenues will be sufficient to cover only marginal train costs, and that ot.-'er purely passen.rer costs (e.g., passenser locomotive ancd coach workshop staff aril booking office staff) are supported v-La nor;nal revenue accounts. In other words, total railway freighit cost is total railway operating cost includingJ depreciation, plus interest on the capital investoicnt, minus that part or total railway operating cost, including depreciation, which would certainly be saved if all. passenger services Frere abandoned.

2200. The mission's approximations of the "real" costs of carrying passen-ers and freight are shown in the following; table. Even wi-th the assunptions of true costs, the freight costs of the aIacionales de i4exico--12.8 centavos per ton-km.--are relatively low, expecially considering that a large proportion of the lines have light traffic densities. 'Jhile the averargye train/kms. per route/km. per day for the whole of its system is low, only 7.5, this average is coimpounded of a very wide range of traffic densities, varying fromt two trains a dav on certain branch lines to between 4o and 50 trains a day on the busiest sections. CO)STS hi'T;) ftiV-Th-L''.IUg,S 01'! LXICO IIL AY3 (lY61) ('^entavos)

Actual revenue per: Approx. cost per: Passenc-er/km Ton/7m. Hassenger/km. 7o3/win.

;cionales dle Nexico 3.6 10.2 5.6 12.8 Del Plcifico 7.0 12.3 8.2 16.1 -nihuahua al. Pacifico 6.8 13.5 6.8 24.6 Sonora-Baja California 6.7 14.5 6.7 lo.l Sureste 6.3 13.0 6.3 23.3 Unidos de Yucatan 5.2 15.8 15.0 35.3 Coahuila y Zacatecas 3.6 17.1 6.5 18.9 1.3 5:0.0 16T3.2

221. On the ot-er railwa rs tie -cesults of light traffic :ensity in relation to the caoacitv of the lines and eau on nt is more serious. The oo- s1tion of the F. C. Del Pacifico, the nation's sccond-rank in. ra`lway, could:l be -Treatlv imorovred b -rn-erease in frei -rht traffic. The Pacifico is a comnol)telyr modernized railway which cDuld eSLy doubl, its pi-esunt lre lrcht train movements without anvy additIonal eojin i*t; Dther than some extra freight cars. According to the l61 statistics tne average daily trai n,/kns.- oer rnite/k-^. ( the aiy e n utner f' tr- -sun r-IAily over each kilo ettcr Lf.he rouite) on this railDa- weie 3.19 passenger trains r -=3 freiti ft1'-h-aking - a ttot oof)nr-cin- l- 5 o -ith the additimn of a few loconotives and a proportionate n-uaber of freig!;t cars the ii'^-r<-S -t. fre ie-A-i+t t- r a.-Iil ' A h, n-ul¾1 i trwn i,sv'rl1n.n-1 I.hrTit1-h-n-f I . ntrr simniFicant increase in the cost of adul-inLstration, superintendence, m? nte-- Y.._ of tcrac. -vcrres arl ;n!nr fixed~c1 mr-~ia on the~ rcaptal ins-mt-ie-t (other V an "or ti:e locoiactives and rolling stock) and for the

;;a.; _ttU Ir AWl V ±' Z 0 .StiWkc, Ni ULIC LtVort turnUJ. , -id 'oLrot U Ituctuate h. proportJjILU'ion- ately writh tho volume of traffic on a railway.

222 ±-io P3cifico's expDenditurc mr be broken down to show that approx- I-1 o)erccnt is :lirectly variable with b.Ce volume of passenger traffic, 30 oercent with the volume of freighlt traffic, and 57 p'ei-C;nt beir, N teLA-A or nonvariauble e.cept LII reS)0nso to vtefry ,i- e fluctuatLion ir traffic levels. Com-position of fixed or nonvariable costs are shown in U-; U.LZt OIJo tl-e c1lowing,page.

223. It b±canI seer Uld vijUinovariaieUtLUza cost a-uFsiL)iig to) rs. KU'1 .0 million, out of a total cost in 1°61 of Ps. 363.2 million, any significarit increa;-e ln 1.aL±iC will very sharply reuuue avuawue costs per ton-km1. ILIU directly variable cost on the Pacif'ico is aporoximately 5.7 centavos per ton per kilometer. ; tal costs, 4iven th- 1961 traffic ievels, were on the order of o6.1 centavos per teni-km. If freirght ton-kins. of traffic had beern 57 Perceiit :,reater th-e total .:OST oer ton-kin would have 1>-len to l.3 centavos, i.e., to its avurage revenue per freight ton-k,iL in 1961. - 66 -

If freight traffic had been doubled tlne avera-e total cost der ton/km. would have fallen to 10.9 cenitavos, assuming that unit costs of labor and materials were unchanged.

NONVARIABLE AID FIXED COSTS ON DEL PAC7FICO, 1961 (millions of pesos)

Maintenance of track and structures 98.4 M4aintenance of equipment: Superintendence and office charges (includings cost of social services) 10.3 De!reciation of plant .9 Traffic an3 transDort: Superintendence and office charges 11.7 Miscellaneous 1.0 Social services 2.0 Express L.8 Administration 25.7 Persions 21.6 Fixed chiarges 33.2

Total 209.6

Passenger R.tes and Revenues

22h. Tn 1'61. the av-ra:e revenue r eceived oer )asseiriel-km on the Goverrmet. ra-ilways was LL.3 centavos (US¢ 0.55 equivalent). This may be comni?ame., wit-.h ar. average hUR fare. of 8 centavos and 6 ce,itavos for first and seccnd class respectively. This is an extre;nely low figure, both nbsolutelT and relat.ivrely to fares on railways in otther nountries Thii h are less developed than IKexico. It can be said with assurance that the npaenger rceives lnt valu for the lowI fare- hp navs. whether traveling in the modern, fast, long-distance Pull-man service_ or on wToodIen seats in the -)I -Ir scrd-class conhpq foundi nn tJhP 7'i ye *^reight. and passenger local stopp.ing trains. And, thou-h the average revenue pe; possennI-Iln varie wid f-rnj r-i I Tr + i rt Y n n lin- a 5~- VL .&L -nr - .1 1.Ta 1 shown no tendency to rise other than on the Del Pacifico and Unidos de t',v~ +- - ,, v.~-I I -.r j,r ,4,- I~-)~7-, i~ 11 W-, cA fn -" Av,vI'i ru'r tbnn run 'i ril-I Yuctante oly ai---jyS .;lhich h.a-,r in-rased1 fare dui te -erod As comnpared with the general rise i.,price levels of 85 percent between 1a0ca1_1 the rlea reircr _n'1 0e. the aoI s. Pi 1 t onh, Q +t Ilaci.onales le MIexico and 18 percent on the Del Pacifico. - 67 -

AVLIULUL RILVrALUL rPa- rASo_.;rtari iL52-$LS (centavOs)

1952 1956 1961

Nacionales 3.5 3.6 3.6 Del Pacifico 5.2 5.2 7.0 Chihuahua al Pacifico - 7.9 6.8 Sonora-Baja California 6.3 6.7 Sureste 6.9 6.6 6.3 Unidos de Yucatan 3.1 3.k :.2 Coahuila y Zacatecas 3.9 3.7 3.6

a/ These averages are ca-imosed .;f single, return, childr;n's reduce rate and other concessionary fares and are exclusive of taxes.

Source: SCT and liacionales de Mexico

225. On four railways the total revenues earned fro;. paasern8ers an.. ,iL and express serv-ices by passenger train are insufficient to cover the "out- of-oocl-et," faarginal costs of runnin- the train. fhey mai-e no contribution toward thae cost of locomotive and coach repairs, track maintenance and passenger booking staff excenses which are clearly chargeable to the provision of passenger train services. The mission estinates that as a general rule, with the present low level of fares, a passenger trainr.will not cover the out-of-oocket expenses u1less there are at least 250 travelin- Dassengers per train/k.m. The actual comparative figures in 1961 were as follows:

Passenger-k-n per Train-km Nacionales de Mexico 205 Del 3Pacifico 206 Chihuahua al Pacifico 296 Sonora-Baja California 555 Sureste 287 Unidos de Yucatan 80 Coahuila v Zacatecas 181 IJeighted Average 211

226. The extent to which these lo-, fares fall short of passenger train co sts can he seen from. the accompanyngf -lini7rm mThiTh illus.trates the size of the gap whiich is filled partially by the other.ise profitable freigrh+. t.rafTffic. BRecasq4 rnf t.hp varynrincr relat;ivre imnort.nnce of pnasqnCrPr traffic to each railway it is necessary to look at each separately. f.C. NACIONALES DE MEXICO COST', & REVENUES Pesos I96!

Millions 17600 1

1,500 [ INTEREST 1] |(112) t| | i NET

1,400 77

1,300 LOSS OM I K\XZ\\\ A\f I FREIGHT i

1 9 n [ * n~~~~~~~~~Iv W \\N\\\AX\6\sr M |. TC. 0 a ';oot PSEGRITANj (440) \\\61 4 1 I 8ILO;N, II

ii~~~~1~FREIGHT TRAINjE NjII

PLANAGMNT.-

800 IGL.S,EI_

700 - PASSENGER TRAIN _TTON!1 I COSTS (630) | TRACK I rT.T~~~~~-1~~I MAINTENAlIJZE1 Ii1 600 |MANAGLEtME NTI BUI LDINGS. 500 PLANT, LOCOMOTIVE _00 1SIGNALS, ETC. a CAR REPAIR | | STATIONS COSTS TRACK I MAINTENANCE I Ii I I . I I 300 LC COMOTIVE TRAIN I I] A REPI R PASSENGER TRAIN R, I hiN, NIN CO STS COSTS"v CO STS REVENUES (190) CSS II 20r0 TRAINIII1 *UNNINGX I P GNUESK.L 104F COSTS j TERMINAL | | oEX ES I COSTS I

MAY 1963 ISRO 1181 Fioures in C I a Pesos In Millions - 69 -

227. Nacionales de Mexico. It ls caicalated t':at running cost per passenger-train km (i.e., locomiotive and trzin cx> salaries, fuel, lubri-- cants, train materials and depreciation ol locomotives and coacihes) amounts to approxinately 12 pesos. For the )urposes of further calculation, it has been assuined that thie joint freig;it and Dassenger service costs of worksnops and running shed staffs do not vary in resoect of small changes in the number of oassenger trains run, but since thle materials used for locomnotive and coach repairs do vary in direct proportion to repair output, a fu-rther cost of 2.05 pesos per train-kilometer mlust be added to arrive at a total estinated oult-of-poc -et cost of some 14 pesos per train-kilometer. On the basis of similar experience elsei.,here it has been assumed that repair .na- terials reprELen.t 30 percont of t1he total running shed and workshop expenditures.

22Fi. The figure of 11 pesos per passenger-train kilo•rneter e.cludes wear ard tear on the track, the cost of station staff, the costs of train control, and other essential services which are common to both freight a!id passenger traffic. ASainst these costs the revenue position in 1961 on the Nacionales ic Plexico is shown in tne following table.

PASSENGER TRAIN REVErIUES ON TIE UAkC0IO~LLj]S DE AEXICO, 1961

Rev_nue per Total Passenger Passenoer, Trainr. tevenues Train-Imil Source of Revenue (Ps. '000) (Pesos)

Passen!ers 119,228 7.378 Baggage 97 o. oo6 EfxpDre ss- 7126 0.521 .ails_/ 29,931 1.852 PT-i~v~lsellanecus Paenier' _Revenues 687 0(0)12 TOTAL 150,369 9.799

q/ 3Ased on 16,159.000 passen,er and thie oassenqer proportion of mixed train-kms.

b/ Excess of receipts over station handling costs.

c// Assumingy Govecr;nent pays "normr.alized" contribution based on full corts

229. Fron the figures it can be seen that, even after allouing for a -ealit-ic c ' ntribultio-n f.rom +.the Govrnmvnt+ f'or, 1 c.nls r.rv- c of Ps. 90 . million, instead of the Ps. 1.19 milli_n actually paid in 1961, every icit by 4.2 -pesos. It is stressed t2at the above costs are the absolute - 70 - minimum out-of-pocket expenses an. make no provisiDn for the costs of a number of other necessary services nor for any interest charges on the capital costs of equipment employed. Th-iese additional costs were estimated to be approximately as follows: Ps. millions 1. Out-of-pocket passenger train costs 218.3 2. Direct passenc,er train operating costs, inclurlin-v workshop and station staff and 1. above, 350.2 3. I'otal passenger train operating costs, includin, trackc, building and plant maintenance, superintendence, administration and social services and 2 above. 570.5 4. Revenues from passenger trains 150.4 Difference h20.1

230. It is estimated that the complete abandonment of passenger services by the PTacionales de 14exico wiould result in savir.gs to it of a minimum of Ps. 67.9 nillion per annum and a possible mnaximLm of Ps. 2)0 million per annum. Of tlhese figures the costs of Ps. 350.2 million are incui-red solel'y as a result of providing passenger services that in no way benefit freight; users. At present the gap of Ps. 200 million between these costs and the Ps. 150.4 million passenger revenues received is an inescapable amount that muist he met Pithepr from flovernment reso_rces or by increased 3assenner fares if the services are to be continued in their present formi The increase Ln fares necessary to close this gap would be veryr Treat indeed: 133 percenl-.

231. Ar effort, howvrer, to reduce the gap between rPvernue costs should be made. If it is not, the Government will be called upon to cover increas- ving dfrtA~f'-i ,-.-~ + c ~asC +tCraf nf'r andC + Thnln T.Tcs11r +iht rwiodiversion (if' scarce G-overnment funds from other high priority uses,

232. To cover only the ou-t-of-pocket expenses involved, i.e., 218.3 nmil- l on pesos, thc avnera fa,rer (before taxes) wJold haveri to be c1 hyhncr

2 certavos per passenger-lkn-, O-f :c roe2t. 'Iee ''z -v::a,_e -11re 2: 5.6 centavos~ per passenner-km ,.OjOlA st411 belo f tic -- re second- class fare by bus as well as those on other i4exican Government operated railways . A ll than proportionate increas-e in lfiirst-class fares wou'lA be required in order to achieve tlhe average increase of 2 centavos. The mission bcllieves -a rcate incre,ass-e on theiabove order sh'-ould be underta~ken. 1 1 n, Icr1 A -r -+ wa anced fin fy A 4-k .the-,b n "-v.An- trr 1 A-low _a-c1 raesn-n

.1.11. 0I. ws Lj U as Vtj]cE ACIU I VLIbC 111LCD.51I Ui 1 VJ V G yL JLVW i a 4 La . which have steadily fallen in real terms as the general price level has

J._isen--ar LCIJ--CLJ --- CS ------_ ,t; sars?C (A- J _ 15_ L tUiJ.Ihe benefiL JC -L 4-U 15±of- 4nWULCl - pore_PVVI' USi ICSLIiJ.LCSpeopl--- I-j-try.-- _LII theUIICS '~ULco---ur J 4UlV . Therefore, it may be objected that an increase in the average fare to

.centIavosL) .6 cetavos;)erI)e.L jJa~sICsenger1assenerhll ;jouliJUU± eiter~LJ.ue reduce±iu~ totalLU d. .'.tovei-,ien'sLuvIiii (because~ of the relatively hig,h elasticity of demand for passenger transport in

-,-V_l o-i! ' co lnl .-.. i _ or ac ;-re 4-eto-rcn' bus trans-)ortationa - 71 -

The recent experience of Lhe Yucatan railway is relevant to this discussion. In Yucatan, which is regarded as one of the poorest areas of the country, rail fares are 44 percent higher (at 5.2 centavos per passenger-km.) than on the DJacionales de Mexico. From the table outlining the experience of the Yucatan railway following a fare increase in 1958, it can be seen that a 35 percent increase in fares caused an immediate reduction of 16 percent in passenger-krns and an increase in total revenues of only 13 percent. Two years later, however, consumer resistance to the increase seems to have been overcome with the result that revenues were 62 percent greater than in the year preceedinc the fare increase. In this case a period of adjustment was needed to bring forth a basic improvement in the situation. As further evidence, the fare increases of recent years on the Pacifico did not result in any slowing down in the nzuber of travelers or of passenger kilometers. This is partly ex-plainable by the improved passenger services introduced at that time and partly by the relatively greater general prosperity of the area served by this railway.

PASSENGER TRAFFIC ON THE UNIDOS DE YUCATAN

Average Fare Year per pass.-km. Passenger Kms. PassenTer Revenues

1957 100 100 100 1958 135 8l1 113 1959 ThL 88 125 1960 15 11 152 1961 150 118 1U0

23Lj. Then.ssion, therefore, is reluctant to believre that the consequen!ces of tie ajera-e increase recommende(d w-ould be dalaging to the railways or

t'ose of bujs transportation. For practical reasons the increase could be mnale in two steps. ioTlever, if it is taken in one qtn th.e-prailway would! be wise to anticipate a first year increase in total passenger revenues equ ivolent to about one-half of tIe fare increase, with the full ef£ect being felt perhaps three years later.

235. F. C. Del Pacifico. In 19•9, in conjunction with the Sonora-Baja to P a1 - P,rnia rail-1ay, +n TheFCP doubled i-ts main line passene,e ser-i provbi:e two west coast services daily between Mexico and the USA, one via PIgales a Indtheother via *nL ¼a4.t. cvh excellence of the service to the public cannot be denied. An examination of the costs involved, however, shows thlat the aduiiLUonal efforu toA LUovide passentrUe-2 transport, has merely :'crease] t!- fLrD.cia 1 deficit on tie operation of t ic r-il jav as a whole. A calCc-ulato otcif t c out-of-pocket costS vf rcrrn :the addition.-l trains, on the sa-,e bisis as that uised ror toe £!acionales 1e iexico, sloos that the co,t pcr pa_scrgcr train/km"PC on tne in 1961 10.59-:iS cs_ s. - 72 -

This cost is Freater than on the Nacionales de Mexico mainly because of the higher vwages of engine and train crews, the greater depreciation of locomotives .nnd noache.s re-suilting from the lanrger nveraCg nmmhpr of1 1nn_- motive units and coaches per train, and the greater workshop and running she-d costs

236. An increase of 1,216,000 passenger +rnink-rmn btweein IQ9R and 1961i required an increase in out-of-pocket costs of Ps. 26.6 million per annum, 4..gured on the basis of 4P. 1. peArctr.n L -a. .The reven-e went as follows:

Revenues PDassenger i3xpress Total I ~i. J2.5Aj~J.LL, I U UCL- (millions of pesos)

1958 28.8 5.7 29.5 ln41 36. n 8.1 .3 Additional Revenue 12.7 274 T .

237. Thus trie nret annual deficit wtras increased by Ps. 11.8 million as a resul' of t'h e iLncrease in passenger services.s hne COnCLUsion to be drari from this experience is that is is impossible for the FCP or any other Mexican railway carrying an average of iess than 250 passengers per train- km, to improve its financial results by increasing passenger services unless hne new service is sufriciently f-ast, coifortable and erficient to co-mmand an avera_e fare of at lest 10 centavos per passenger-kilometer. This estimate of course is an understatement if costs continue to rise.

238. The la.test results for 1962 show a continuing imaprovernent in passenger receipts from existing services, although it is doubtful if the improvement is mnore than, or equal to, the rising cost of operation. The average revenue per passenger-kilometer on the FCP is the highest of all Mexican railways. The mission does not recommend any furtlier im-lediate increase. But future extensions of' passenger services should not be made unless there is some sure certainty that they will produce sufficient revenue to cover the additional train and workshop costs involved as well as make a small contribution at least to overheads.

239. '--c '-aala il2ornia. Because o.fthe .:ory hi_h average number of passengers per train-km this is the only i'Texi,an railwayv to have made a Dro'ihlable co-=e.-clal busines5 of passencer transport in rece: t years. In l¢6i, vhe average :-uber o9'9sengers 1cL tra :-. -rs 555--the figure .::aso.eeri everz higher in the past. Of t1he total train-kt o.- this railway i961, 54 percent was for passenger services which earned 45 percent of the total revenue, or a sum of 39.2 pesos per passenger train-km. Although the railway made a small operating 1961, the cause cannot be attributed to passenger losses alone. It is doubtful if any better passenger results are attainable. The average revenue per passenger-km is 6.7 centavos, which is higher than might be expected when - 73 -

it is considered that the majority of the passengers are harvest workers travelinf secorjd-cl:,s to and fro 5Lo dUti.uj ti e h'urvent season.

2L-0 Chihuahua al Pacifico. Conditions on this railway have changed since the link between Creel and the Pacific Ocean was opened for traffic at the end of 1961. Up to that timle no purely passenger trains had been run. All passenger traffic was carried on mixed freight and Passenger services. L'he usual formula for dividing mixed train k-ilometers and costs between freight to passen=;er is on the basis of tlhe proporLion of freight to passenger vehicle-kms hauled. These statistics were not available to the mission, but assumin,; a proportion of two-thirds freight, one- third passenger, which is fairly representative of experience elsewhere, it applears that passenger revenue is sufficient to cover out-of-pocket cost. and ,-rovide a small rargin towards the exoenoes whicn are common to freight a-r passenger traffic. The average revenue per passenger/k,m of

6. '0! cr:!tavos, iS rnrn.parAhl to tho5p of' other rail brays in tloe northwest of ',exico, arnd in existing conlitions does inot appear capable of any significant inrease.

241.~~~Sureste ~~ passen,r-h sen vicr1e, co.s sts- fI onentr-s~.-' a d:ayin eachl direction, passenr-er an'3 mixed trains alternating. The passen7er trains

are well equipped and co,-fortable al,hou:nh smTat s,1 r,. All tI in, ' well patronized. T,he avera-e fare of 6.3 contavos per passenger/krn for al:L c'asses -roduces us muchit revenue as can reasona±ll bIoeex,,ected. T-I" A 'i- wayr has a heavy financial loss, for resors explained elsewhete in the report, wi--' s 'un)lllely to '-e sJ--niflcar,tly affected 'y-any action on thc- I ~CJC'.U VIL-L. ICI L. I . J U .1 J CI _ ~LJIi~L~ U ~ CIjU -L. I Jy dii U4J_3 ULI UI pasuen2-er s;ide of its business.

242. Unir]-c deJ ucatan. Passen;er trains on t' standard-gauge lines of t1i £:t I YuiJ, W-vilC runr in conjuncuL±r withri re Sureste, are fast and corrn- fortable. 3ut the equipment and track of tile narrow-gauge lines is generally so old and in such a poor corAition that it is not surprising that trains arc slow aid poor timekeepers. Passenger/knm per troirL/km ai-aount Lu unly OuJ. atu anr average revenue per pa3l-sernger/iurri o' 5.2 centavos thre reveruos received oer t-rain are insufficient to cover even out-of-pocket costs. It is doubtful, however, if tne present service is worth any more than 5.2 centavos per -passenger/k!i,) or whether the railway woul-d retnim its existing, traffic ir fares were increased,particularly in view of the forthcoming road improvements in the area.

243. The rail2way administration put forw-,rd an esti:iate of the invest.ncent necessary for the *iidening and renewing of the narrow-gauge track. bince there is little freight on these narrow- gauge lines and, as sho-itm by the experiences of the other railways kwitr the exception of tne SBC), passenger traffic revenue at best can be expected to cover only direct operating costs, the :;iission reco.ie,iends that the narrow-gauge lines should be abandoned when they reach the stage when their replacement becomes technically inevitable, subject to the provision of a satisfactory network of reason-- ably good roads and sufficient buses to handle the passenger traffic. - 74 -

24h. Normalization of Passenger Losses. The loss incur-red on passenger trains working on the 17aciorales de ire.ico has been calculaled as Ps.6J3 rillion on the basis of out-of-pocket costs and Ps. 200 "AiiiLon on the basis of direct operating costs. The latter figure includes only those costs which are incurred solely on passenger train opera-tions, anl excludes those costs which are common both to freight and passenger services such as trazk, building and plant maintenance, superintendence and adninistration. In other words, it is thie minimum sum which could conceivably be saved if passenger train services were to be completely discontinued. Since there are valid reasons why some railway passenger services should continue to be operated as a public service, supplying the needs of remrote and isolated cormmunities. it is possible that the only saving of expenditure which coulJ oe secured is by the discontinuance or curtailment of those services in areas where adequate alternative road services exist. Onlv by elimi- nating all passenger services other than tho.2e w;hich because or their h:i- speed and co.mfrt conild rnmmand a fare of at lest ten centavos ner passenger-kilometer could any substantial contribution be made towards the elImination of this railwayrs financial deficit. The trains retained would be exactly those whicn least serve the needs of either the poorer sectors of +the hr.nn,mv cor.--.u1nit rI or of'ri pol l vin -l - v, - cinl +.r.A ri ct r.

245.C I 4. --u. co- - services-i are retaLnec for v.ri4 V -asons of Government policy, the mrission assu-imes that fares will be suffici.ent to cover at least thle out-of-pocll-et costs of uni, hetais There.an der ot' direct operatin- costs, such as rurnninc shed and workshop repairs ofL locomlotivesSn ocea r.aUUUA'~JJZ)1tissenger stUat.ion booki.~nm staffL.L, VhichL are incurred solely for passenger operation, are not a fair charge on the users of tLe freict service and n3, be regarded as tb e price the com-unity pays on behalf of tnose who cannot afford to pay more to travel or who, because of laack of altern.itive means oI transport, would be denied transportation servioe. rhe costs of joint services, such as track, buildings, signals, tiain contrAl, administration, accounting and storoekeping must of neces- sit,y be borne by freight traffic. Lhe mission recomniends, that so far as the Nacionales de Mexico is concerned, passenger fares shouli be increased so as to produce revenue equal to out-of-pocket costs anrd that the difference OT rs. 132 million between out-of-pocket passenger costs (Ps. 213 million) and direct passenger operating costs (Ps. 350 million) is a fair estimnate of the normalization allowance requirea to support t:.e passenger operating loss of the railways, pending investigation into the possibilities of vedu2in s:t services Sd;;e aldeq.te aiicrnatisie leans of transport exist.

246. A simnilar calculation for the Pacifico railway shows the following in millions of pesos:

Out-of- pocket passen-er train ronicing costs 46.6 Directl-yr variable passens-er train costs 70.5 - 75 -

247. Detailed expenditure figures were not available for the other railways, but the mission has made the follo-wing-, extiiiaates on the basis of passenger-kilometer costs publishedl in the "'Dstadistica de Ferrocarriles" for 1961: Passenger Service Revenue Costs Deficit (millions of pesos)

Chihuahua al Pacifico 3.2 L.8 1.6 Sonora-3aja Calilfornia 15.0 17.2 2.2 Sure ste 6.9 8.7 1.8 IJnidos de Yacatarn 2.9 6.5 3.6 Coahuila y Zacatecas .2 .2 - Total 26.2 37.L 9.2

248. The total losses on passenger services for all the government rail.- way[s. whfh cannot be met by exi.st:ing far.. and the recomrnended fare increased on the Nacion-ales rde .lexico, arid inatr not be thought of as a legit'- mate charge to freight servi.ce rser. are as follot.fs!

Ps rsiflionn

aIf ciori s crle*exicoP 132 Pacifico 2l Othio r a±lw.ay,s 9 T'al 165

FreiMht Rates and Rtevenues

24O. The present frei;ht rate structure of the railways does not fully 4e',.ue t cos4tsof oprratnfi servces, as analyzed herei-n by the mission, nor do they operate to take full advantage of tne railway's technical aovanta,e as a :edi of trans,,ort . Is de have seen, the rail- 1,iay's advantage lies in its low energy and ianpower reqlirem,lents per traffic unit msving.-.fvin laarre volumes over long l.auls. The mission believes that the Yexican traf'fic situation is such that, if the railways operate efficiently so as to -aximize these .echnica' a`vani,.

250. The mission is not -uge.st ng Gi-Wat rates mhould be based on the full costs in urred for each an] averv comr-dioty ov_r any distance. This would be difficult if riot impossible -to apply and also would be undesirable in that some commnojities would not move at these rates, and, as a result, rail facilities would not be fully employed. Ihe problem is rather one of ma- neuvering rates betwieen the lowest and highest practical limits.

251. Fro~s ho rallwa~ s -ievrpol:ci, .Lez.`imum rate on any commodity ohould not be less than the direct operating costs incurred. If for reasons of public policy the railways are oblieged to carry at below this cost then, as the tlission has stressed, the difference by which the actual rate charged falls short of the direct operating cost should be a charge against the Central Government.

252. The maximum railway rate chargeable as a practical rqatter is dic- tated rainly by the lowest economic rate byr road transport, less an allowance for the advantages of door-to-door services provided by trucking and any speed advantage which may significantly reduce the costs of either consignorst or consigneeslinventory holdings. In some cases an allowance is also necessary to reflect the g7reater eleinent of safetv in carriage by road of fragile, or high-valuje, or perishable products. In other words, the transDort userts decision as to which mode to employ is influenced by an ani,lgam of factors and not Just the line-hasl costs involved. By settinc rates bel;Tqeen the two limits, which in pirinciple would be a mix- ture OL I"cost of service" and "what t(e traffic -ill bear" pricing, the railTways car crea.te an over-all structur.- tlhat would match average revenue per frei.Alt-ton/kilometer with the full costs incurred. The major weak- nesses of the Dresent rate structure, as wi'll be demonstrated below, is the lick of a proper balance between short, medium, and longer distance rarn!esq. Taei -iision will also icderrtify the GOrn iodi ties wh eh are the most pror-uctive and unproductive producers of revenue and estimate the level nf te r1dPfc'it1+. on unnprly .t-v co.mo±t-i' Tn adi1tion tn a ra- tiDnalization of rates, t e mission uelieves tlle objective should be an 1 screase of 25 enrcent in totalnrei-ht revenue

253. Rationalization of Freir?ht Rates The basic desiryn of `lexrican railway rates was clearly set oat in a recent consultant's report:

"Railroad freigaft re.tes in Mexico fall into two pri.aary groups. Class rates aply to classes numbered from 1 (the highest) to 12 (the lowJest). Every com,morlity is iniexed in the Frei-ht Classi.rication of t, e ` exicr.ar, nr _-lTYrS -,nrA do +rad nar rl ce S S n Ship-enn+ S a rinc aranA a nrd *h U SVJ.t La 1 3t&.t=e V ..aj . L a.~ s- * &* .X J '0 4 S1 C' .A-VUL. Cd .4-LI 1.,,, . Cd a.. in a class for shiDments in less than carload lots. Special rates

J. L A 4..L U 'I's HQCdA4U JI A.L~, aCD XII, UI1 VLCAUUE CIJ( '0 X"UC 0, CLI. D -JlAll.O±CUC CjJ individual railroads on specific co:-mAodities with the objective of making rat4-es lower "Fan,Ile class rales on tr>fic -khcm,oves over a lin4 _in I ELUD* ± VI U l.. ULID~X_L X0I u0 Ul CUl LCD- WII.LuL iIJvet, UVCD± EL ..L..LIA inL substantial volune or which is sulbjected to competition. iost of these rates adpl-, onUly- on carLoadL shU-UJLp;JIenIUt. Lhe special ratues tu.aXe tCl-e om1111 of numlbered colu:nns in the tariffs similar to the columns oI class rates. - 77 - and one column may apply to a single conmmiodity or to several commodities whose characteristics warrant the :ame rate. A tnird group of rates in use in the Unitedt States--exceptions to the classification--has no counter- part in Mexico.

'Virtuially all Mexican rates are applicable with gradations for distance betgeen all stations on the pub'lishing railroad. Rates restricted to specific points or to specific groups of stations, as comaonly published in the United States, are unusual in Mexico. A few such point-to-point rates hove been established to equalize rates between two railroads con- nectin, the same points and to meet some specific situations of truck competiti,rn. Each railroad publishes as one of its tariffs a table of distances between stations on its system. The rate for any shipment is shown in the appropriate colinum of the class or special rate tariff op- posite the distance between stations as shown in the table of distances.

11?Iexican railroads have observed the comnon principle of railroad rate-7making of using a tapering scale or rate of Drogression, or reducing tne unit rate as the distance increases. This principle recognizes that, while line-haujl costs may vary closely wit distanne; te.rni nal and certain overhead costs do not increase with distarce. The factors of cost ac- countinc, involved in dretermininrn and. senprating the sie?era1 varinhle and nonvariable costs to some degree limit $-he accuracy with which a partic- ulor qcnlp mn-1r rfflecnt. tbhe r4X/c.q. no!t Pl, ier-nt.q in-vlvel-l. Tn sqrome cs,es, a taperin- rate scale may be looked upon ar a "wholesaling"! device to induce long hnuiil traffic m-rouingiri mnaximum nper-car revenues for the railroad."

254. MIexican frei-Vht ret.s are also generally all-inclusive so that it iQ no-tne.cessar- to r zfrher ot s-fp.nrarv taiffs info meet terrnminllI charges. Frnile tnere is a multiplicity of special rates, many of which may be ao.lica'le to atsinr co-m , te r ier.ative1 r -asyr to identifyr an-d shotild cause little trouble to users.

255. On t'ie Macionales de .exico, there is a minimum charge of Ps. 150 per frei-ht car r--- -- ,v of-Iad. lo This ch---, T4, i convr- ada rtLy the terminal costs of ,haulage, marslalling, consigning and waybilling, takwes precAlence ;ver tuie cIlass anc' s.ecial rates, up t o (istances Or 20 kms. or 25 k.s., where these are less than Ps. 150. At these points, 4the raila is4e..uren rec--rl for- termidnal costs o..lv, and UtiC I -L±k'CL 1. ;;t_V _LU1. 4i U uJ.I U .1. t±ILLdL,U ~ ~ , I~ nothin, in respect of line-haul costs. In general, it can be said that itsra,s r oo low up lo 4k.s.- AisaLnces~~over IwhichL" -large vlU of coal, vlp:lu and sugar cane are shipped bv rail.

256. From 50 1mns. upwards, the rates usually Dro,-ress in an alhost suraig'-tu ±1ne .JUr' SeVel'al rlnU'Ur: ±UU iuerS Defore WVe L,aper be-LinS tu as5sume significance. In this re,ion, betwcer 50 kms. afl'n.We 1)oint of major break in Ghe taper, raLes dre IsYallymore thiarn adequate to coveer - 78 - total costs. When the taper ta-kes effect, it usually .noes so with such extreme suddenness that the reduction in the rate per ton/km is often as much as 50 percent at a sin-le step. The breakpoint is apparently decided for each class or special rate from an analysis of traffic distribution ard with the ob,ject of miniriizing transport cost differentials between meditum-and long-distance traffics. The most frequent point of br.ak in tlne ta,.er is at 800 krns. In exceptional cases, however, it .rnay be as low as 2)0 kms., as, for example, the case of fluorite (espato fluor) where the charges are as follows:

FLUORITE: - SPECIAL RATE NO. 3

Distance Rate per Ton Rate per Ton for Each Successive 200 kms. (kms.) (pesos) (pesos)

200 29.90 29.90 too 411.0 11.20 600 'o.50 9.ho 800 58.10 7.60 1.000 6320 .10

257. Thlis i',an exceptional case with Line presume.] interition of encour- nqinv thp Pis Clr±. mnr&r±t.i nC rf a 0 rT1-- II IIP c-rnrr1iirt. nrcArliirP.d nt. -nt- trb.11. wi differing ill distance from the point of export. A imore typical case is as follows:

kTsT, 3AqT ,AV 7P - SP;OCIALt.tATE l,O. 13

Distance Rate per Ton Rate per Con for -ach Successive 200 km.s, (knis.) (pesos) (Peso,) OR In '9 -i 4°0 52.60 24.50 600 75. '0 23.20 800 96.20 20.40 1,000 10-60 10.30 1,200 115.75 9.25

..1L Lnn4kJ\J J-cL14.-1 i.2 n.5c) * 1,600 131.95 7.70

2,000 145.00 6.15

2508. uhe shiarp bureak ln r the tauble at uu8 rIii3. w±i±l be noul±eu. I- a lI cases, t,he taaper is cz)ntinued up to 3,000 kms. at wtnich point the rate is; usually well below malrgilnal trainb costs, and, ir; sume cases, is reducea to an alinost negligible figure, e.g. salt, which is char;.ed at only 20 centavos )er tori/km for, distances beyond 2,500 kms. FDrtunately, from a rcvenue-e.arning point of view, there is scarcely any traffic whicn moves such long distances. - 79 -

259. The resultant effect of bhis rate structure is that the average return per ton/km is comrpourded of rates for short to medium disLances which are often above total cost, including fixed charges, and rates for long distances whicrh in their upper segmnent may be insufficient to cover even marginal train costs. To the mission it seems there is a danger that Lhe rate structure could lead to road competition in the mediwn distance rarges (say 100-800 kms.) and leave the railway with the bulk of the longer-distance traffic in low-value commodities which produce insufficient revenues to cover average costs.

260. The rates charges on the other 7lexican railways are -generally in excess of those of tL-c kacionales de '.exico. Therefore, their opporturi- tie-. Lor incroasing revenue by raising rates are reduced. 'Onparative figures for 1961 are showin in the followin- table:

AVERAGE REVENUE AND TOTAL COST PER TON/EM, 1961

Average Revenue AiDproximate Total per Ne-t Ton/Km Cost per het Ton/Km (centavos) (centavos)

Nacionales de Mexico 10.2 12.8 Del Pacifico 12.3 16.1 Chihuiahua al Pac=fifn 13 .q 21.6 Sonora-Baja California 14.5 16.1 Sureste 13.0 23.3 Unidos de Yucatan 15.8 35.8 olahulila y Zacatecas 17.1 l8.9 Average, all railways 10.6 13.6 US3 per ton-mile equivalent 1.23 1.58

261. Since a continuation of tne present levels and pattern of rates is I iely to increase the .Jacionales de tIro I' fin-ianci al deflcti ni to .abro Ps. 630 million by 1965, and the total deficit for all government railways 4-o th su n o4 Ps . VJ,Jo r.llUon, the bei^hel ev-L i+ Js v-tal to in^crese ,he revenues of t1he Nacionales de Miexico.

262. On the 1961 basis of the Nacioneles de Mexicots operating expenditure, an appro xima at io,,, o-f t+he co st onf c arrr,ins fre ighW nt OrI ryi ngr, 1lo -ad ability over varying distances has been made by the mission. Detailed resu.lts are s'aoT.m in Appendi TableLx _0. Zip, ying t"trule"l cosuus analysis to tne particular commodities carried on the Nacionales de Mexico, accor liitg to thne ave-rage 'lengthi' of ha~ul and' averag,e car'loadt of' eachvi UIt_e following articles may be instanced as the least productive and most produu;cIve 0± uiLtU Vrveniu:t; - 80 -

Articles which Produce Revenue Articles which Produce Revenue which is not Sufficient to Meet whicn is Sufficient to Cover all Total Freicaht Operating Cost Costs, including Interest Charges and a Proportion of the Loss on Passenger Working

Charcoal Timber "precioso" Rice Coffee Oats Lubricating Oils and Greases Sugar cane Paraffin Chick peas Acids Sisal Alcohol Maize Enamelled Metal articles Potatoes Beer Pineapples Dynamite Bananas Structural steelwork Pulque Tinplate Coal Oil. "elaborado" Iron ore Bricks Manganese Machinery, electrical Cattle and Small aninals Motor Vehicles (parts for assembly) Lime and Limestone Panpr Waste Paper Sodium Products Return, d em.pties Tiicdustri-al Chem-ePIAs Flour, other than Wheat Caustic Soda Less than carloa-l traffic

262a. qet-een these extreies there is amvast nmbe' and variety of com- modit-es which generate revenues sufficient to meet the total costs of frei.ht1 U sv V L a butA~not;ULL.J i LG toJ mLakeA a contribution- towiards interest charges and the uasserger proportion of joint passenger and fer-i~ht costs. Co illustrate the significance of the relative freight costs levels more fully, the particualar case of wheat may be instanced. In 1961, the fi-ures show an ai-ran e ^arnload of r) to-n an avcrage length of haul of 612 kms., and total ton-kilometers of 597,530,000.

REVENUE FROM WHEAT, 1961

Revenue or Coot per Ton/Km Total Revenue or Cost _ . keenta-vos)_ . (pesosy). .

A J. I7n ,' V a IActual 'Reavenue, 1961 74 4J,224,OOOS Variable Freight uperatin-- Cos-t .20 31,072,000 Total Freight UperatUng Cost 7.20 43, 02 2, uOO Total Freight Cost 10.70 63,936,000 - 81 -

263. The increase which would be needed to bring the revenue from this low-rated commodity to the "total cost" level would be disproportionate both to the existing rate and the value of the commodity itself. The position as it affects all freight traffic is summarized in the accompanying staterment. The figures are condensed from cost calculations of 112 separate commodities. The analysis is based on the assamption that passenger fares had been increased to the point where they meet out-of- pocket exDenses for passenger train and that the Government hasd reiruursecd the riliway for the full cost of carrying mails. Thus the cost figures may not conform to published data.

COMMODITIES IN DEFICIT. 1961.F.C. NACIONALES DE MEXICO (millions of pesos)

Total Frei,yht Deficit Deficit Freight Operating Total on Total pcrcentage Commodityr Revenue Gosts Gost Goat of' P,evenue

Agricultural Products 179 179 247 68 38 Minerrl Products 265 263 370 105 39 Animals and their Products 15 19 26 11 73 Pefro eum P~rodu~ctc.~ 20R 170 9X,7 39 10 Inorganic Products 78 68 94 16 20 lIa~nu,facturedr~ CT'fro~ 3 245 374 30 8 Haterial for Gjovernment and other RailirJays 11 10 19 3 27 L&zss thiar Carloald Traffic 10 13 14 4 4h

Total b,138 988 1,418 280 25

264. In the course of preparing this analys9is the mission was impressed by the close correlation between freight rates and freight operating cost fUor most of th low-`vavcALue comi,oditiJuS. nJLy Lin ULthe c o of ptlJ Jn products and manufactured goods do the rates appear to provide any surplus over freight operating cost to meet the passenger deficit and interest charges.

265. As a result of its detailed investigation of freight rates on the Nacionales ie ?iexico, the mlission recommends:

1. That the rates for short distances (under 45 kilometers) should be increased to reflect more nearly the combined costs of handling at both origin an! lestination terminals and actual line-haul CsU-s. 2. That the taper on rates should not be reduced to less than the directly variable freight operating cost, which on the basis of 1961 expenditures is calculated to be 5.5 centavos per ton-kilometer for traffic moving in carloads of 36.79 tons, whichi was the average for 1961.

3. That rates for medium distances (say 100 kilometers to 800 kilometers) should be adjusted to levels that neither discourages rail traffic nor encourages roai coinetition.

L. That after a study of the effects which might result from 1. and 2., a 7eneral rate increase in freight rates should be exanined with the object of prodlcing a 25 percent increase in total freight revenues.

266. This latter exa-mination the mission suggests should be made on corm- mercial principles. While it is appreciated that trhere may be good reason why comrmercial rates should not be cnarged on essential coLmmodities such as wheat or naize or mineral exports, once having assessed what the commercial rate is, it is for the Uovernment to decide what the actual rate to be charged should be so as to reflect its economic and social objec- tives. The amount of revenue thus fore7one by the railiay can be calculated at year's end.

267. Normalization of Freight Revenues. Here we are concerned with the freight traffic carried at rates below Iirect operptinu crost. Cnmirodities carried on the lacionales de iviexico which appear to be insufficient to cover direct freight operating rnst were lisTtedI,hrnr. i n rconnection with freiglht rate policy. Ihe mission has no specific evidence as to why the rates for tnese ronmrmnodities were fixed so low, nor whether they are the results of direct Government intervention. However, since such essential foodstuffs and expnorts as sugar cane, maize, cattle, coal, iron, a man== ganese incur the greatest losses, it seems not unreasonable to assume that railway costs were-a second-.. U inJation the final aeis4io. FJor the purposes of "normalization," the estimated sum by which tne revenue on t.hose t'om.oH, ts falls short of direct fr-eig+ orating cos wil1- b. considered as a payment due to the railways from Government in respect of those members of the co.mnunity for wh-ose blenef the ver-y-1Vr w charged. For the Nacionales de Mexico alone the total su•. involved is

as their costs are generally higher than those of the Nacionales de i4exico

44 L _' - _ - -- _ I - . - - - 'I 1. - / - o - - . . I .. ±IC IS ±u Calulauvae thau on a ton/Kiloimeter pro rata basis the amount by which revenue falls short of direct operating cost on a portion of their frelght traffic is not less than Ps. 12.>9 i-rllion, making a total of Ps. 64.9 million for the railways as a whole under this heading. - 83 -

Viability of Light Trafficked Lines

269. The test of the viability of a section of a line, or a branch line, cannot be madle by simply comparing the cost of operating and maintaining the section with the revenue derived directly fror. the carriage of freight ancd passengers over the section. i4uch deDends on the volume and length of haul of traffic which is carried over the remainder of the lines from or to ste- tions on the section. That is, a section which within its ownm i-mits may not earn sufficient revenue to cover direct ooerating costs, may originate and attract a large volume of traffic twhich mi-ht not have developed had the line not been built. or alternatively. migrht be lost if the line wjere to be closed. Of course, only in exceptional cases would it be likely that the rThole of the main line traffin !enPratcd tuould bsa lost frorfi the closure of an uneconomi.c section or branch line.

270. However, to determine without doubt wh-at financial advanta e is to be aine-d from elo. _ apiI i ne the risi sl ha aiim-e that a total I oss of inter- chanr-e traffic knight occur. On this basis over )4,150 route/kimrs of the Nacion- n l. rlr r hnon +.n+.d -

271. The opnerat+ing and ^aintenance costs of the sections examfined have )een limited to those wxhich are directly attributable to the wjorkin-g of the sections . t,nA4I-r,-,11 lmnc+t - - - 4- ru'-k rvi. - '-'r-A nf r 1n ,,, O fC +, 1An r andthich, 's eralnlyj, ' L '-e- 1t-, on Cs...clo o Z

'I rrackl-T m ntena-nce. .L* .1. c lUcVILU u~l;icuu. 2. 1laintenance of line-side buildings.

4. Train running costs (eng-ine and train crews, fuel, lubricants,

IliaterU , LoUmUotive and rolling stuck repairs,s aintLenance andU depreciation.) 5. Direct supervision.

272. ight operating revenues were calcula UoLf fo a analysid. Ifre g traffic distribution by remitting and receiving stations. Passenger revenues wiere based on 'the a-verage reven-ue per train/la for the wrhole railw!ay, Iat. s, passenger trains at Ps.11.66 per trainAtm and mixed trains at Ps.3.04 per train/hn. It is appreciated tn-t tnis basis is not entirely reliable, and tilat variations will occur over the difLerent sections. It is thought, however, that such variations will not materially aifect tne results because

±. Passenger trains will not be run in pceference To mixea Trains unless there are sufficient oassengers to justify them; in other words, thAt the number of pacsengers will be roughly equal to average.

2. ldixed trains are confined generally to lightly trafficked sections, practically all of wshich have been included in this calculation. rv71 t- - -- r I -- -- - l- - - 27.3..ull Uziese bases some 23 sections appear to oe unprofitable even after givirgthem full credit for traffic interchanged with the main line systuem. 'Thb'e sections are listed 1fiLn the auccouIIpanyling tabU'le andU shllown. on the map (next page).

274. From traffic which is carried to or from these sections over the mainline of Uhe railway the excess of revenue over out-of-pocket cosL is estimated at Ps. 27.1 million. Therefore, the minimum saving to be secured frn--o theilr closure may be assessed at rs. 40.2 million Der amunu.

PRCOBXBLE "UNPO?0ITABDEtt SECTIONS ;F T-iE Ni.C IOALES DE i M,XICO R-1ILIzZ

Excess of Direct Operat- ing Cost over Revenues

Section _Route/lans (millions of Desos) _

Paso del Toro - Alvarado 51.1 1.43 Oriental - Teziutlan 88.6 2.98 Tehuacan - Oaxaco - Taviche - Tlacolula 325.7 7.39 Cuautlixco - Puente de Ixtla 76.5 2.39 Emp. Los Arcos - Atecingo 97.4 3.59 Atec:ngo - Trlancualpican 18.5 0.52 La Soleded - TeDa 15.0 0.45 Ventoquipa - Beristain 33.9 1.03 Emp. Sototlan - Honey 22.0 0.76 Tula - Pachuca 70.4 1.36 Salamanca - Jaral de Progreso 35.3 0.83 Silao - Guanajuato 23.7 0.61 Acambaro - Apatzingan 350.4 8.30 Ric Laja - San Luis de la Paz 50.5 1.09 Durango - Teoehuanes 216.7 5.59 Durango - Aserraderos 140.2 4.74 Purisima - Regocijo 55.2 1.48 Durango - Felipe Pescador 265.9 7.67 Torreon - Encantada 283.7 6.19 Ernp. Tamos - !-agosai 80.8 2.20 Torreon - T'1ahualilo 92.3 2.59 Allende - Cludad Acuna 117. 9 2.47 Maravatio - Zitacuaro 92.2 1.65

Total 2,603.9 67.31 SnCR N4 4 Vt!NCLORASy//0 FC. NACICRNALES DE MEXICO

SsoE<~~~~~~~~ 4; / MTMPSAILW'AYS R)«*

E E QSALIILIEMONTERREY ~~~~~TRAF F'IC Fl_OVY

\oeR OCIIO -S - 00RCLOA CICH PbA FWC. ACIONS PER MON EH PIOZOOC == EF8Os j IFe \ \ MAleNDAIOSC4I~~~~~~~~~~~~~~~~~~~~~~~h- 9-C Lin1n@es\O ______A/U Sl /t 2ACATEOASE41 -? < SOII SO;OOO=t, FRdI EIG J S H

UOOATECAS L ES, 0RD116 IRo

0.00010 CR00101. -.. 00 ~ ~~ ~ ~ ~ ~'0 eT 0000001@h( ~ ~ ~ ~ ~~~~~~.- 20.000 =S= -C-' =

'000S1~~~0,01ncs00~ ~ ~ ~ C00oC

AS~~~~~~~~~~~OASECA\\.IER aOMR

Al)(.UST~~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~00010~ ~ ~ 0'6 5,11,0W '165e - 86 -

275. A look at the areas served by many of these lines suggests that closure of the lines would be most controversial. The mission believes that a solution to the problem would be for the railway administration to confirm the above first approximations by an up-to-date cost study and the working out of a phased physical and financial program with the Gov- ernment as to which lines could be closed--leaving them to be served by road transport--and which should be kept open in the public interest. After the process of identification and assessment of the costs involved in retaining uneconomic sections the government would then be in a position to make an assessment of what portion of the costs should be "normalized"'. The excess of operating costs over revenues on those sections judged to be uneconomic can be considered as services rendered by the Na- cionales de M6exico in the public interest and the amount of such excess costs be naid as a Government contribution in the form of constructive revenue to the railways.

276. The mission has made an assessment of the operating result for a further 1,547 kIms of Nacionales de ',lexico lines which shows a loss on direct working expenses amounting to Ps. 26.8 million. In the case of these lines, however, the surplus of revenue over out-of-pocket expenses on traffic hauled to or from the sections over the remainder of the system amounts to Ps. 54.5 million. If the whole of this traffic were to be lost as a result of closing these branches, a net loss of Ps. 27.7 milllon would result to the railways. If only 50 percent of the traffic were to be lost, the closure of tne lines would result in no saving to the rail= ways. Unless traffic over the lines falls away very rapidly in the future tlhere a,pears nc reason o doubuu their financial advantage to the railway. The lines concerned are:

Ixtepec - Ciudad Hidalgo Rodriguez Clara - -an Andres Tuxtla Julia - Balsas Los Reyes = Cuautl = Atecingo El Rey - Pachuca San Augustin - Anulco Vanegas - Matehuala San Bartolo - Rio Verde Adrian - Rosario Yurecuaro - Los Reves (M) Penjamo - Ajuno

277. On the basis of fully-distributed or allocated costs, including interest charges, the mission calculates that those secticns of the Na- cionales de Mexico which have a freight traffic density of less than 1.25i million net ton/kims per route/km ner annum fail to meet all charges. A section having only 500,000 net ton/kms of freight per route/km per annum will nrnvuid revenue isuffic5ent to cover all direct operating costs and make some contribution to cverheads.

277a. The only other railway with branch-lines which can be judged in - 87 - comparable mLanner- to the Eacionales de iexico is the !'acifico. lhe mission made a study of the traffio which orJgcinates on or is carried to stations on the Ameca and S-an .arcos branches, and distances such traffic is carried over the main lines of the Pacifico and National Railways. This stuy ind±icates Atha't,althiough LU ithe revenue derived LProm. the carrlage of passengers and freight within the limits of the branch lines falls short of their direct operating costs, the excess of revenue over out-of- pocket costs on the line haul of traffic carried over other lines, to and from.the branches, more tua com,ensales for the working- - on the branches themselves. The benefit does not accrue to the Pacifico, hlowever, since thI'e grealter ,art ol thle traffLL icpasses hrough C-uaaa jara on to the Nacionales de N6xico lines, over which it is carried considerable distances . A ofViar.ib-On ever,Vue anU eAHenses on its Ameca and San Marcos branch-lines shows that the Pacifico loses some Ps. 2.4 m.iliona ear. Te Pacifi.-co, which is now faceu withu sub st ar. tiLal exDenditure for the rehabilitation of these branches, is entitled to some suppo~rt in rela-t-ion tvo thIe operating losses on t1hese lines whi,,ch -ere recently transferred to it from the Nacionales de leA6xico.

278. The other five Government railways of Mexico stand very much in the position of branch-lines in relation to the main system of the country. As a result the same principles of assessment of their profit- ability could be annlied. f-Cm the-. basis of their onerating eosts and the revenue derived from traffic moved only over their own lines they all operate ata financial defieit. However, if the revenue which they con- tribute to the remainder of the system is taken into account the oicture of their financial viability may well be different but the mission did not have the information to substantiate this. The Sonora-Baja California almost certainly contributes sufficient to Feneral railway revenues to match the financial deficit on its own operation. The Chihuahua al Pad-- fico's finances should improve greatly from the opening of the mountain link connecting it with the Pacifico Railway. The Sureste Railway contributes something of the order of Ps. 12 million to the revenues of the Nacionales de M6xico, but its own financial position is marred by excessive and special maintenance costs. The Unidos de Yucatan system is probably financially viable in so far as its standard-gauge line is concerned. Its narrow-gauge lines, however, will require complete Govern- ment support.

Labor Costs and Social Services

279. In general the Mexican railways have had the sizes of their labor force under good control. The Nacionales de 16xico, in particular, has taken advantage of the labor-saving opportunities which the introduction of diesel locomotives has made possible. A comnarison of labor per traffic unit of work done on the Government Railways of Mexico in 1961 with that on the railways of a selection of other countries confirms this view (see ApDendix Table 12). The number of men employed on maintenance of track and structures on Mexican railways comoares favorably with the numbers employed on similar duties elsewhere. However, among Mexican - 88 - railways, the Sureste stands out as being by far the highest in this, and indeed in every denartment. The need for seemingly excessive labor on this railway relative to the volume of productive work done is caused by the very poor state of its track, which necessitates excessive maintenance, and the running of far too marny work trainrs. in1961 lore work trainrs than public traffic trains were run on this railway, causing inflation in the costs of equipment rm-aintenance and in traffic operating costs.

280. Or, equi-pment maintenance and traffic operating, Mexican railways on the average appear to employ more men than those found in other countri-es. Thile differences, lowever, are r,ot-excess - ive -- A may be at",ib= utable to local conditions which are not strictly comparable. Under the heading of awl-Lnistratuive andu managerial staff, however, t-here dAGes seem to be a tendency to top-heaviness which could be avoided.

281. Over the years a satisfactory improvement has been achieved in Out- put per man empl.-loyed, as the accoui^aiying table indicates. As agalnst a

TRAFFIC UNITS PER i1AN Ut1PLOYED, 1961 (ton-kms plus passenger-kms.)

Railway 1952 1961 Ratio of 1961 to 1952

Nacionales de Me6xico 173,0u0 261,000 1.51 Del Pacifico 215,000 335,000 1.56 Chihuahua al Pacifico 100,000 141,000 1.41 Sonora-Baja California 245,000 265,000 1.08 Sureste 50,000 87,000 1.74 Unidos de Yucatan 68,000 72,000 1.06 Coahuila y Zacatecas 95.000 _95,000 1.00 Average 171,000 256,00o 1.50

51 percent increase in productivity per man on the Nacionales de M16xico, the average increase in real wages is only 38 percent, as can be seen frovi the table on the following page. That is, producLivitJy per traffic ur.it per man aopears to be increasing at a slightly Laster rate tlan real wages. - 89 -

WAGES, R-VEL IS, COSTS ANDI OUTPUTS (1951 = 100)

Mincionaleps dep WlxiG.O 3/ Pacifico

1951l 1956Ioo1961l I95Q" I5Q19

Purchasing Power of Mexican PesoZ/ 100 70 54 100 70 54 Cost of living (Reciprocal of 100 143 185 100 143 185 above) At Current Prices Averaige Wage per employeel/ 100 15i 256 100 189 265 Average Revenue per ton-km 100 123 158 100 127 150 Average Cost ner ton-han 100 132 173 100 100 12h Average R.evenue per pass-km 100 108 106 100 114 152 Average Cost ner nass-km 100 2h0 32 100 LL0 717 At Constant Prices Aw-nrrp 1lJAfge nper em--ployee-l/ I100 108 1R81 ion 132 I WA Average Revenue per ton-kn 100 86 85 100 89 81 Average Cost per tonrlan 10n 92 93 100 70 67 Avzerage Revenue per pass-km 100 75 57 100 79 82 Average Cost pxr pass-Ian 100 168 176 10 308 357

Total Freight tons-lcIns 100 125o lhl 100 l-1 170 Total Passenger-Ians 100 119 130 100 79 122

1/ Total labor force less construction and unclassified workers. pensioners, etc. 2/ NIf2xico, 1960, Banco Nacional de Comercio Exterior, S.A. 3 ./:[ncluding Hlexicano

Source: Mission estimates based on SCT data.

282. Out.rmt npr man on th-e NMaeionales de T-exico_ thp 2acifico and the Sonora-Baja California is reasonable, in the missionts opinion. On the Chihnuhua al Pacifico it should imn-rove withl. the opening of the link to tIe Pacifico. Any improvement on the Sureste and the Unidos de Yucatan, as the miqqicon haq q1aPriyr rn1-j~rl woill derendnort+. nnltr nn arc-ion of th>,e railways themselves but also on the rate of':onomic development of the Yucatan Peninsclan The Coahuila y Zacatecas line, which employes oray 225 men, is mainly for the carrying of minerals, thetraffic in which has declined in recent years, The1 in-enance of 'borproductivi+y in such circumstances is corilendable. - 90 -

283. Tne wide range of average saiaries per- employe on th. wi-e1e- rail rays is showrn in the followiii, table qhich sho.vs tihe total number of employees by railway. During the ten years 1952 O 1961, tlle greatest relative wage increases have been to the employees of the Uni;.ci de Yucatan and Sonora-Baja California, In the former case its wages rates in 1952 have still left the average emoluments per employee the lowest in the country, other than Coahuila y Zacatecas. On tne Sonora-Baja California the increase in average money wages during the period was 168 percent, and in real wages 66 percent, whereas the increase in output per e:mployee wras only 8 percent. The effect of this disproportionate incriease in cost in relation to output is reflected in the deterioration of the oferating results which change from a surplus of Ps.12 million in 1952 to a def"icit of Ps.2 million in 1961. 284. The employees of the Pacifico have attained a favored position in termas of rlexican railway wage and salary levels. The position which they have held for many years past aprears to be perpetuated with each successive wage revision. The labor contracts of both this railway and the lNacionales de lMlexico are renewable every two years. The average award of salary and wages increases, exclusive of social and "fringe" benefits, appears to have been of the order of 10 percent at each revision between 1952-61. This rate of increase of wages on the railways does not seem to have been gr2ater than in industry generally, nor, as mentioned above, have real wages outstripped productivity. Since 1960, however, the cost of living has tended to rise more slowly than earlier. Railway productivity has also shlwn signs of a temporary slackening off. It is important, therefore, that futu e wage awards should be related more closely to move-. ments in productivity and/or the cost of livinge

1ABOR. FORCE AtD IJAGES, 1961

Total Average Railways Wages as emolumerits No. of Waves Bill Inonme a poarcent oer Am]ovee employees (Ps. million) of income (Pesos) liacionales de i'4exico 55,h430 879.9 1,359.0 64.7 15,900 Del Pacifico 7,171 150.8 286A8 s2.c 21,030 Chihuahua al Pacifico 1,719 20.0 35.0 57.1 11,600 Sbnora-Bajan Californi 1 23.1 3 1 6E 8 17, 70r Sureste 2,539 39.0 25.2 115.0 l1,400 UTnidos de Yrlcatan 1,348 3.8A0.( 132.7 10,200 Coahuila y Zacatecas 225 1.8 3.8 47.4 8,ooo T -1 1v9S7AOlM 7IR -I - . I,755.3 67 r6,o7 Normalization of Social Service Costs

285. In the process of normalizing railroad accounts, the costs to be considered are those 1nich the U.I.... has described as: "The extra working costs, above those payable by a priv.-ate employer, which the State raiJ- way may incur because of la'> and w.rfare policies imuosed by the Government."

286. In the case of Iexican railways the cost o2 social service benefits may be suwmarized as follows:

.TPreiJalrhicness Tnrlpmni- and and acci- ties and health dent pay conces- services (Ps. millions) sions Pensions Total

Nacionales ce lexico 55.9 20.9 73.1 141.5 291.4 Pacifico 10.6 37 10.0 21. A 1.f Chihuahua al Pacifico .6 .2 .3 3.3 l. Sonora=Baja Californa 2.0 .3 .2 .1 26A Sureste 1.9 1.3 2.2 - 5.8

Coahuila y Zacatecas .1 - - - s_l rnI U UCL.L 76f La U C ln 86e.7 16I±U7. -I1 .)~J;

287. In accordance with the social se-rvice legislation of lexico in the case of a private employ-er, thr.se services F ould be provided by Government in return for a contribution by both employer and employee, the employer's proportion of which is based on a scale averaging approximately 8.o percent of the gross earnings of the employee. If, therefore, the railway of Aexico operaTed ot) the same basis as tiLeir competitors they would be cal:Led upon to pay- t1le following contributions to social services:

Total wages bi-l, including extra time and holiday pay. Contribution to (rl2^l5audi . construction and social services capital works employees) at 8.8 percent (millions of pesos) Nacionales de iexico 811.4 71. 4 Pacifico 160.4 14.1 Chihuahua al rPacifico 19.5 1.7 Sonora-Baja California 22.8 2.0 Sureste 25.8 2.3 Unidos de Yucatan 12.2 1.1 Coahuila y Zacatecas 1.8 0.1 Total 1,(053.9 92.7 - 92 -

28 ille "iterenlceof' Pso262UL .ru".Lon betwse h otiuinwsca services thus calculated and the actual cost to the railways of providing tne services themselves, in the "normalized" form of accounts, should be considered as a "constructive revenue" payment by the Government to the railways in order to equate railhay costs with those of costs in industry in gen3ral and, in particular, withl those of their coinpetitr.s.

Compensation for Carrying Aail

289. The mission was given to understand that some years ago the Govern- ment agreed to reimburse t-e railways for the full cost of! carrying mails, but has not done so, presumably on the grounds that since it subsidizes all railvay deficits, irresp ctive of the service involved, it is unneces- ary to make a separate full payment for mail train services.

290. The mission believes that a full accounting of mail carriage costs shotld be part of the process of nomalizing the railvay accounts. The Nacionales de ilexico now includes the cost of transport of mail in its statistical returns and so the major part of the services rendered by the railvays is knowin. For 1961 the figure shown is Ps.29.93 million; the payment it received f rom the Gov.runnent for these services was Ps.1.19 million. Assuning that there was accommodation for mail on all passenger and mixed trains on the other railwiays, then based on the Nacionales de fiexico mail costs of Ps..158 per train/kilometer, passenger and mixed, the following ap,roxinations for 1961 can be made:

COSTS OF CAR..YIN\ MAIL

_n7--TrIaJ7kms - A,pproximate total passenger cost of carriage and mixed of mail (F'C00O) (Ps. '000) Nacionalos de ilexico 18 ,919 29,932 Pacifico 2,586 h,08n6 Chihuahua al Pacifico 337 532 Sonora-Baia California n. Al. EU Sureste 456 720 Unilos de Yucatan 863 1,363 Coahuila y Zacatecas 82 130 Totals 93,T51 37,Lo7

Less payments hv onerrnmPn.t 1 800

Ne+. cot 35.607 - 93 -

Depreciation of Fixed Assets and Interest Charges

291. In the railways' accounts for 1961, thi, following amounts appear as provisiotn for the depreciation and renewal of fixed assets:

liiillions of pesos

haei onales de ', yxico 82.5 Pacifico 58.9 hi!hlmivhln a1 Faci fir 17=1 Sonora-Baja California 3.3 Sirreste 1.6 Unidos de Yucatan 1.5 Coahu-lila1 r 7anfcnat.Ca= _ ToL.al 7:09

292. Wdith tihe exception of those for the i-acifico and Chihuahua al Pacifico Ra1.ilways t+hese fi:gV-1T1es P:itCly do not rep.reseet the annual diminution in value of the fixed assets on the basis of either correctly r.zcnnorAdr1 h; i+nti a Ic nF.+t onm_ ren t-rdayr rnepn on r7c1nt v Juei110

±VJ..i t, .J± V.. A K] WJ.J 4 Vl .4 L' L V ~.CL¼ .1 _.eL V V '_ o

The. M.lo..- was inormed t th-e-hat 1Nac-iotranles de 1,;exic- has u--n-r taken a complate revaluation of fixed assets, the final results of which were not yet avail.able. ;--,1,I'Jriral .1U etre,Cwve, Ls that the revised an-nuAl depreciation provision ~;h,ould be of the order of Ps.30O fmillion. This taihe mission accepts as realistic'

294. In the balance s'heet tU Lhe Ucnidos de Yucatan tue :--ritten-down value of the fixed assets is shown .s Ps.9' million. On the basis of an average remaining liie of possibly ten years, anc assuming that repiace- ment of all except the standard-gauge line is unnecessar,y, depreciation is assessed at Ps.9 million a year.

295. The values of the fixed assets for the Sonora-Baja C'alifornia, Sureste or Coahuila y Zacatecas railw;ays vxere not availab)le to the mission. un a rough estimate of depreciation at the rate of Ps.20,() 0 per kilometer (ai,proximately equivalent to the estimated revised figure for the N de M) the annual provision for each railwlay would be:

Ps. millions Sonora - Baja California 10 Sureste 14 Coahuila y Zacatecas 3

295a. In sumrary, therefor?, the total annual charge against income to - 94 - nrovide for depreei2'.;ion andrerewal of fiyed assets is estimated as follows:

Ps. i4'illions

Nacionales de l4exico 300.0 P-J f-co 58. Chihuahua al Pacifico 17.1 aonoraCa ifornia = naja ~10.0 Sureste 14.0

Coahuila y Zacatecas 3.0

an0 1 Jd±i es tDLm C O LO UL.L'/' iL_ L IL VLll jJUU L UI1t I'.-J_ LL IWArW V|_lA6 O a amounting to Ps.247.1 milliona a vear, as coirapared wiEthe depreciation and r-en-e-va1s figures actUuCa`lly., shi'JVIn -in th,: pJubJLlished actcoUrm1. Interest Charges Il U-I- t, OidL*o

6 29 a. i th!le Gov-.rnment uere tUo a3jwiie toh r luLUbi for maklint,".Lg constructive revenue payments to the railiTays to :aut the 'osses resulting from tUhe provision of services and the keeping o,p-n oi' braech lines at un.- economic costs for reascns of' public poiicy, then, in return, the railways vould have to make a payment to the *ov-ri-v.ent in thn;- fri of^ i nt rest on its large and gowinry capital invrest.meit ir the railTays.

297. The miss-on believes that the current written-down value of railway fixed as.ets could be taken as a basis froa vhichn to calculate these interest charges. However, since the Cov-rnment does riot nolw lake revenue payments on a normalized accoun-ini; basis, t'he current value of assets employed at present in "uneconomic" raiI.iv onerations should be deducted fron this figure. In 1961, some 4u,-D ofoos. lino on thle Nacional s de illexico did no oroduce revenues suf iclent to cover thieir onerating experses and over 40 percent of its total train-kms. were Ior passenger train services of doubtful viability. s.pa ent of interest, therefore, on some 60 percent of the written-down value of Uie fixed assets seems a reasonable first approximation.

298. This depreciated value of fixed as,-ts, as recorded in the balance sheets of four of the seven railways, totals ap roxiinately Ps. 7 billion. Assuming that the remaining three railways - the Sureste, the Sonora-Baja Califorr7a anid the Coahuila y Zacatecas - wXere v:luAd on a pro rata route- kilometer basis the total figure would incr-4se to about Ps.7.7 billion, 60 percent of ;which equals Ps. 4.62 billion. At an interest charge of 6 percent per annum, i.hich may be regarded : *Ale opportunity cost of capital in Nexico, the total annual payment from the railways to the Go'rerrment would be Ps.370 mnliion. The mission is unable at this stage to'teak down this total payment as betT;ween the particular railways since an analysis ol' their differinng ability to pay and the varying character of their operations w,ould necessitate an unwarranted degree of care and investigation by the mission. Railway Viability on a Normalized Basis

299. The mission considers that rationalization of the accounts is so important that it invested a considerable amount of effort to estimating the true position of the railiways, in 1961, as sumnarized on the following page,and in the years 1963-1965.1/ The adjusted net deficit of the railways on a normalized basis in 1961 would have been Ps 227.9 million, as contrasted to the deficit of Ps 507 million officially reported.

300. The mission estimates that if increases in rates and fares are not introduced and the principles of normalization are not applied, the combined financial deficit of the Government railways, as recorded under present accountin.- procedures, will increase from Ps 507 million in 1961 to Ps 1,094 million in 1965.1/ In arriving at this estimate the mission has made the following assumptions:

1. That passenger and freight tralfic will increase at the rates forecast in this report.

2e That Government will reimburse the railways for carriage of mails on the basis of direct operating cost.

3. That having regard to present trends in the cost of living and wholesale price indices, wages, salary, and materials costs will continue to rise, but at a slightly slower rate than in the past. Allowance is made for further revision of the 1acionales -le Mexico labor contract in 1965.

4. That the process of dieselization will continue and that savings will begin to accrue in 196! from the purchase of locomotives in 1963 but that realization of the full savings will he delayed until after the end of 1965.

5. That a proDer and consistent method of assessing depreciation of fixed assets will be adopted on all railways, whether or not the principles of normalization are applied.

6. That interest charges on existing assets will be calculated in the manner previously outlined but will increase in total because of estimated further borrowing,

301'(Whatever mav be the un-lerlvinc causes of the deficit. or the real value of services to the nation disguised by present accounting procedures, a renortedl dPfie-i t of more thnn one bill i on npesos annot fail to rai se in the minds of both the i7exican public and external financial institutions

1/ See Appendix Tables 28-29. - 96 -

I1EXICAM GOVERE.1-NIMT RAIL,I,!AYS NORiIALIZATIOHi OF OPERATTUG ACCOUNTS YEArP 1961

iillions of Pesos

I. Operat.ing Revenue as recorded in published accounts 1,750.2

II. Carriage of nails: additional pay-ient necessary by .,'Fover:

ITI T s on gross receipts, i +d - ff' rates and fares, to be retained by railw.ays as revenue ea r Yed -I5.0

IV. o7.t,rctv rv. Va-eltne neesal by Govern= 511O.nt in respect ol':

(i) Freight tralfic carried at rates less ULICU ALLUL±;U Uj .LUd -LJ, U ~J4*7

(-1s iasserngeitP traffLic:d,enc'.ten inarginal and direct operati;g cost 165.2

(iii) Social services: excess of cost over contlri'-utions req-uircu by lawr 261.9

(iv) Unocoalociic iiines: excess of operaiting ex-enses over revenIuea 69.7 5G1.7

V. Total Tioniialized Oneratina Ttuvenue 2,501.5

VI. Operating Expenses as recorded in published accounts 2,112.3

VII. Depreciation of Fixed Assets:

Revised provision 412.0

Less: Provision already charged to expense under Vj (164.9) 247.1

VIII. Total Operating Expenses 2,,59.4

IX. Net Operating Surplus 142.1

X. Interest Charges as revised (8") (370.0)

XI. Net Deficit (227.9) - `7 the aravest doubts as to the efficiency and econorac viability of the country's railwoays. On the Niacionales de ilexico alone, the net deficit for 1965 is estimated to rise to about Ps 89-7 million; inless action is taken to increase its rates and fares and to present its financial results in nccm'dTn,c with the principnIe of' n,rr-nnItiontn so that the true value of the services rendered by the railways is shown.

302. On a nonralized basis of presentation, the estimated operating re- "lts of' futuire years indicate that in 1Q9 +.het (nirornent railTwiays of ilexico should show a surplus of about Ps 300 million on paynent of interest ch-arges- ass-mi-g that adequate rate a. f j+vmrt a Even so, thi^ operating surplus is equivalent to a return of only a little over four percer.t on the 'as'se'ssed1-- of productive capital e,.ployed. ro achievc in 1965 the tar-et oS an eight percent return on capital the nwrcow. f't 4 c hk+ r, r_-!nir r+ _; l o s. sn'A *sA +, 1- 1 1 R a a f,_ - rate. . for a . VVI' U,_ . ..'i4 'S,J0 'S centavos per ton-kilometer. By comparison with the existing average rate of G. ceC.tavo,,rs per ts -would me,- -n ove-all 4.0.4'S.4.'*'S.PV' .44. -, ton-klometer14 tlOA'i WVUJU.L LU .Ul U VVU -L--.L increase of 30'.O percent writhia a period of two years.

303. Taking a longer view, the mission estimates that if the average n.%1_L u L _ II . :tl _ n3_X ..u z7_s an.t;u a Ir-l C.v: e i G*L Jn|1 - -1-o cos^OJ uvu liV vU UUv-lar Ui JG-, GvU rate cf increase in the cost of living, and if tile potential economies of f urther die_elization car, 'oe seo-uredU in11 FLul', thU I.LW'.t. WoUIUJ U e 40 red-uce ton-kilormeter costs of freipht operation in direct ratio to the estimated incrLease in traf1ic so that, by 1970, it might wel-l be possible to keep the total cost per ton-kilometer to 12.8 centavos.

304. For the more im,mediate period ahead, the mission's recommendation Uta fUJ_-eiglu Uates oni tne iJacionales de ilexico be increased so as to produce an avera,e increase of 25 percent at the earliest practical opportu- nuty is adopted, the average rate for all Government railways 'Jill be approximately 12.5 centavos per ton-kilometer. This increase should make the total railway system into a viable business activity, wiith an 8', return on capital being earned by 1970. Additional rate and fare increases ln later years miay, of course, be required to keep prices of services provided by the railways in line with the general price level and with 4.1- ithmo-vemrient of railway wages.

305. Effect, of Present Railway Revenue 'T'ax. The mission recommends that careful study should be ;nade of the effect on railiway rating policy of the 12.2 percent Government tax on railway revenues and the restrictions which the tax might place on the railway's ability to obtain their optimum revenues. According to the railway tariffs this is a flat-rate tax levied over all classes and special rates at all mileages, without discrimination as to whether tile rate is high or low, profitable or unprofitable. To the railways' customers the rate or fare they pay is regarded as the cost of rail transport. Due to tne effects of the rate tax, the 25 percent suggested increase in freight rates becomes to the _ 93 -

customer an increase of 2&.05 percent; the e-ventual rise of Lo percent would be interpreted as an incrcase oL l44.6 percent in transport costs. The tax is levied eaually on each and everv unit of gross income, even though a loss may be incurred in producing the income.

306. At the upper end of the scale, the fact that the tax must be paid on ev rv rate is a serioiuis 1i trtatim- on the ra 1T.rjays' nhj1a-irtv toi maV - mize their revenues. For example, if the lowest economic road rate is 2-) entnvos npr ton-kilometer, the highest competitive rail rate cannot exceed 17.3 centavos, plus tax 2.2 centavos. From the railway point of viMe the commodities best able to bear the tax are those which are rated above tiie level of direct operating cost but well below the range of road o-npetition. The mis-sion fi.-s no justificatin, for a tax on th- trans- port o1 such lowZ-rated commodities as iron ore, coal, iluorite, wheat, maize, sugar cane, d th , which are car.-ed at below-cost rates for the benefit of thle commuunity as a whole, nor for a tax which restricts the railwayc' abi; ty to co:,pete road*'in transport*.

307. In the mission's op4-,nior railL`-ia lates should represent railway revenue and if there must be a tax it shlould be assessed on net revenue. In tn'-e past the Government has derived no r.onetary benefit ruT.i-the uax but has hlanded it straight backc to the railways in the form of a "subsidy" to meet losses on operation. It is felt tilat Goverrmenrt oulu lose noth-ing and that the railwuays wfould be greatly encouraged in tiieir search for eco- nor,c viability if this tax wjere abolished and tihe total receipts treated as revenue received for services rendered. This is a reasonable assumption conslderirig that lhe tax is not paid by road transport.

No nal ,izeu r'ositIon of the 4aoiona±es de iexico

30u. Starting fro.n a deficit of Ps 377 million in 1961, the National Railway is faced with an estimated increase in operating expenses of Ps 622 million in the four years to 1965. To meet this total of almost one million pesos on the debit side of the operating accoun t, th, mission estimates that normal increases in passenger and freight traffic will produce additional revenue of some Ps 212 million only, and that further small increases in revenue will arise from miscellaneous sources and the carriage of mail. It is clear, therefore, that some action must be taken. now to improve a situation which, if allowied to develop, will have become extremely serious by the end of 1965.

309. If the mission's recommenidations that there should be an average increase of 25 percent in freight rates and 2 centavos per passenger/kilometer on average passenger fares, and also that the accounts of the railways are normalized, are all accepted, thien, it is estimated that the Nacionales cle Mexico will be able to show financial operating surpluses in 1964 rouglhly equivalent to a return of 5 percent, and of 3 percent in 1965 on the assessed value of productive capital employed. - 99 -

310. Tf the traf fi G forcast for 19f5 proves tobe acc-uratej and the proposed rate and fare increases are introduced, the amount which the Nacionnles detileioi will collect in transportation tax from railway users on behalf of the Govermnent will be about Ps 222 million. If this Slim weren rgde asvn- 1Jirw revern.ue , a +the mi-ssn 1 suggested, anti as probably most railway passengers and not a few shippers believe, then the est-lra*ted suplus ie-nAcrea se su.f'- n-n+ lh +o -- an- Apercn+ return on the investment. The sum shown in the railway balance sheet -nder the0 Le-.o"zbJJven+4U4o,s and C-rants" wll increase, therefore, during 1965 by only a little over Ps 4 million, as against the sum of Ps AO" whi h wo l caCeGa, A-3A 4' 4 an w4; EA - A and the principles of normalization were not applied. The mission has sumr,,ari zedAh 4 net cash posiior ofP the- Tt--ac e de-A-exico,-andAthe implications from the standpoint of Govermnent support, insofar as transactions al-LisigL Udir-Ueuctly f1rour1 reU.nLt operavs o WM- railway- are concerned.

CASH POSITION OF NACIONALES DE iEXICO ON OPERATING ACCOUNIT (millions of pesos)

Actual ESTLY rED 1961 1963 i96L 596G 1. Total operating revenue 1,359 1,997 2,319 2,379 2. Operating expenditure before interest charges 1,624 2,099 2,120 2,246

3. Net operating surplus or (deficit) (265) (102) 199 133 4. Add back: Depreciation provision 82 300 325 350 Taxes collected from customers 154 170 214 222

5. Net cash surplus or (deficit) (29) 368 738 705 6. Payments to Government: Interest charges (112) (260) (310) (360) Taxes (154h - - - (266) (260) (310) (3b0) 7. Net cash support required from Government for current operations 295 - - - 8. .{et rail-way cash surplus available for financing further capital investirient - 108 428 345

311. The position may not be completely satisfactory but at least facts will be known. A foundation will hiave been laid on which to set policies in regard to rates, fares and investments on a basis of rational arguments. - 100 -

It will take time for the cc=munity of railway employees to learn that their livelihood depends on the efficiency and viability of the organization which employs them, but at least a start can be made .nen the fog which now surrounds railway operation has been dispersed.

Normalized Position of the Ferrocarril del Pacifico

312. The mission, in the time at its disposal, has not had the oppor-- tunitv to carry out a detailed analvsis of the Pacificols costs on the same lines as that performed for the Nacionales de Mexico. It has prepared a statement of how tne onerating results of the railway would appea;r in "Normalized" form and has made tentative projections of the railroad's defcit position, on the same normal-ied basis. over the period inder consideration. A more detailed study of Pacifico operations will be needed to evaluate cost element.s more accurately for nrormalization prnrposes. tIA.h normalized accounts, the railway may have by 1965 a net operating surplus of thle order of Ps 3 million. However, interest charges are at present payable by the railway only on the unredeemed portion of the Ulorld Bank loan. On the basis applied on the de Mexico theINacionaes an.nul payment to Government in respect of interest char-es would be of the order of Pea70 Trs; 7 resuoonofa e accutst.s od man a net defict ofDperhaps Ps 67 millL-1on on normalized accounts. P,T/N1ThA AT T,7LT, A_.IT nn TVr'T'Pt, Ar IT,1I' t'tDnr Ar,'TT nVT T3 60TT1Tr 1kqJI CL±t .L4LL.,LJ ILNJ L kVJ1'AJJ LA~LILJ J£J~1i IL LLU I £L"%J. L J'~

,MCtu al Dt ii lla te 1961 1962 1963 1964 1965

Operating revenue (1961) 287 287 287 287 237

Add: Increase in traffic - 3 14 26 33 Normalization allowances - - 64 64 64

Total normalized revenue 287 290 365 377 384

Operation expenses, excludin,- depreciation (1961) 271 271 271 271 271

Add: Increased costs - 23 34 45 50 Depreciation 59 59 60 60 60

Total operating cost 330 353 3f5 376 381

Net operating surplus or (deficic) (43) (63) - 1 3

Interest charges 33 32 70 7u 70

Net surplus or (deficit) (76) (95) (70) (69) (67)

313. The ut'ission estimates Lha lt 1ios; 50 percen, oi thc operating deficit of the Pacifico is accoun-ed by twie difference between the average rate of pay per employee on this railway and on the Nacionales de Mexico. In tact the difference betwjeen the Pacifico and the Nacionales de Mexico is so great thlat, although productivity per man employed is substantially higher on the Pacifico. the cost per unit of output (passenger/km. and ton/kn.) is higher at all cos. stages from marginal cost upwards. The conclusion seems inescapable that any improvem,ent in operational results --especially considering that this railway has been thoroughly re-equipped in recent years--will depend on a gradual reduction, and eventually on a final elimination, of this wage differential.

31L. The -.mission assumes an increase in freight earnings for the Pacifico, perhaps reaching in 19b5 a level of Ps 33 million above the 1961 figure. The terrporary setback of the past two years was due Lo the g-eneral reces- sion in traffic which wFas experienced throughout the country in 1961, and to the diversion of traffic fron the Pacifico as a result of the ooenir.Z in late 1'9;1 ol ,-he new line extension of the Chihuahua al Pacifico railwav which crnn.ic-iorqh Iv -,hnrir n&d thc distanro betwpen the Pacific north- qest and the remainder of nor.hern half of the Republic. Fortunately the divers7in d-d noc a-ect the revenuesof t1ie Pacifico as seriously as 1he consulting engineers a- first had feared. With the development of new - 102 -

traffic patterns and the upswin, in tile economy i: is reasonable to expect that the upward trend in the freignt earnings of the Pacifico aill be resumed.

315. As the iiiission has shown, an increase of only 57 percent in Lreigh; ton/km. on this railway would reduce the average ton/lksi. cost from its 1961 level of 16.1 centavos to 12.3 centavos, which is exac.ly equal to the present freight rate, and uould result consequently ir; a balanced bud,- et. The mission has no doui,t that such an increase in trafLic will come in time. The question is how soon--and what happens to costs in the meant-ime.

316. From 1156 to 1959 average freight rates werc steadily increased t-o a maximum of 14.5 centavos in an attempt to reduce the operating deticit. B,mt, according to the railway authorities, it was found in 1959 that traf. fic was !being diverted to the roads. Some rates were reduced, therefore, and part or the traffic reoained. Since an average rate of 14.5 centavos is lower than any economDic road rate it must be concluded that some railway rates were greatly in excess on the average figure because others were being held artificially belows the average. Many of the hligh rates have been reduced while the low rates re,sain on the grounds that rhey are necessary for certain roodstuffs and raw' materials which have to move over extremely lon; distances.

317. The rates on such cssentials as whkeIaL and -saize are ooviously less than di-;ect operating cost, \sic1h is La,.ken to incluGe trairi costs, repairs to loconotives and fre-i.ght: cars, tert,inal costs, maintenance of wvay and struciures, train and traffic conLrol and station staff, otiher than passenger. The cost has not z2ee;. accurately ascertained, but in the belief that it will be of the order of , centavos per ton/km. for the average wagon-load at the average lsn ,nh of haul, the shortfall on this finaure from all traffic f'ailing to meet the test is not lilcely to exceed grcacly the sun., of Ps 5 n-il1 ion Thls revenue adiustnment is re flectedi in the normalized accounts.

3180 As a further imLportant item of normalization, the sum oy which the cost of Rocial services excee-;cd t.he minimunm rontri,ul:ion rerqiuired by law wvas assessed by the mission a; Ps 32 million in the case of taht Pacifico. In this regard it is to be no edtathat the -iilay makLes a large provision each year for the payment of pensioners, mnany of who~L .were emiployees oE forts er OnylerS of thNe rail-war ITn 1 0(1 thkr. set 3i - nsc Po 24 m4I- ion.

319. The mnission believes '^hat the upward trend of passenger traffic this case, means all train costs plus naterial consumed in workshops and runnibsleds.Uoweer, he la'bor cos.s of: passenil)er locom.ot-iv e andA car repairs and of passenger bookcing staff, which cannot- be me: by passenger trailn revenues s,rl l rLUa alniL-1CnLdi are not a faldir C)har , LEghLr tr afcLL. A very rough estimate of those normnalized costs ij Ps 25 million per year. 320. -rJc arnual loss incurred rr,- tc-r Ci-ico on -ne Ameca-_. -( 'COE 1 res, which 1has beon identii,ed b- the rission as 1e.ervir-t cl 0-werrn.ncn cr.-,-envaKm;:o i c2-7ial-ted at Ps 2 nillion (rounded).

321. Provision for depreciation oi: fixed assets appears to be adequate, having been calculated on -he basis of the costs of complete rehabilitation and realistic estima.es of service ].ice of the assets employed.

POF'i*On-, of tbr Other Railways

322. Fcrrcc-rrl Soonra-Baja California. Traffic on the SBC has increased only 36 percenu ia the past .:en years, while costs have risen 232 percent in the same period. As a result a proitL of Ps 12 million in 1952 chan-ed to a deficit of Ps 2 million in 1)61. Provisional figures, based on results for the first ten months of the year, indicate a probable de-iciL oL Ps 9 million in 1962. Moreover, since interest char-es on the capit:al investment are no. included in the puulished accounts, and depreciat.ion provision is unstated, the real deficit is g rea'er.

323. On a rough normDalization of .lhe accounts tlhe financial results of operation on the SBC, actual .nd estirnated would be soi.ewhat as follows:-

Actual Provisional Ls imated

(Millions of Pesos)

Operating revenue (19Al) 35 35 35 35 35

Add: Increase in traffic - () - 2 ; Niormalization allowances - - 6 6 6

Total aormnalized rcvenue 35 31 41 43 45

Operating expenditure (191) 34 3'4 34 34 34

Acd: EstiLi,ated increases in costs - 3 5 7 9 Depreciation and reaeLwls 3 3 10 1O 10

Total operating expenditure 37 40 49 51 53

Operatin- surplus or (deficik:) (2) () (8) (3) (8)

Interes:: charges - - _ 7 10

Net surplus or (deficit) (2) (,) (13) (15) (18) - 104 -

32h. There aDocars to be little opportun7ity t, reducc costs to any significant extcnt. The numib'Lers of ,,en employed have ,e,n satisfactorily controlled, Although an increase in freight rates .ight well be justifiedl it is likely to diver: traffic Lo the Pacifico rou.e via No-ales. Road competition is not a nrobleni in the desert area which tlhe SBC traverses.

32g. Unless the volume of t-rafic via the west-coast route increases very substantially the outlook for -his railway, operating as a separate entity, is not promising. It-has been stated previously, houever, and must be re- peated here, 7.hat it is misleading to test the economic viability of an out- lyin, railway such as the S''C on -he basis of the revenucr earned from the carriage of goods and passengers strictly w.ithin the limits of the line

-sc 1Th, *traffi4c wh-cIh the i ne confrilues to '-hc rc;-cainder of t-he systei.i may be far more importan, in terms of net ton/kw. and the resultant surplus of reLv nuc over mart .Lal Cost-s, thCan the to;-al trar'fic movemerts which take place within its own li,nits. Unfortunately the mission rioes not su f 4 cient in4orm,a--on. :o sia.-e- .. t.extent -o ,,hich the SBCG -enerates Lih-ave v su LL J. LU L IlL..* traffic for other railways. The mission believes i: is doubtful if this, or any other of the five smaller .iexicanGovern.cn- railwaYs, will ever be alble to stand independently on itis own financial fece.

326. F. C. Chihuahua al Pacifizo. In connecLion with the construction of the m-ountain link to corplete this railway fr.oUL CretALs.Laton t.o its 4u.cion with the Pacifico at San Blas, the railway's consul.in- engineers mrjade a comprehensive study of the t.-ralfic poicritials and a LorecasL o' operait.rg results. In their opinion i:e operating deficit of the railway would be greatly reduced immediately .`enew line w,as opencu and it would be possiljle to achieve an operating surplus in `he seventh year aftcr openilng.

327. The line was opened ;o tra_fic late in 1961. ThL results for Lhe first year's working conformRvery closely with tile consuiLing engineers' estinlate. .Jli hil, the operaiing deficit of Ps 23 inillion of 19G1 was reduced sharply in 1962, to approxiuaUŽely Ps 14 tm,illion, on t1e basis of the first ten wonths' results for the year, iL is too early as ye. ,o express an opinion on the validity of the estina;:e that an operating Surplus lwill re earned in 1969 since the new traffic paLtterns hiave not becomne established.

328. F. C. Coahiuila y Zacatecas. This smlall narroo-gauge railway has done extrenely well to limit its operating deficit to Ps 400,000. Traffic has decreased over the past ten years. Rising costs have been offset by staff reductions and the introduction of diesel locomotives.

329. In viewo of the proposed eli.,ination of narrow-gauge working elsewhere in the country it seems un'ortunate that no proposal :o widen the C y Z tracks has been made. There may, of course, be engineering obstacles which preclude the widening, or would require disproportionately high costs to overcome. In any case, as a oranch line of the N de M, there is little doubt that its continued existence would be fully justified. 3ut as a separate railway entity it is unlikely ' o show a financial profit on operation unless there is a substantial increase in traffic, the prospects for wihich are not in sight. 3 C.. S-i~Lreste ar-. V Uln s. d,e `uca an. U1n-l such a aiaeas tli.e levels of prosperity and production of ,he Yucatan peninsula increase to t'osI_IU4bt: Uoi i t't1I1I: _ £LL..r .. .- t LJLQ f tLHe .n UG1.i Ly; :fIleiL£8.- t LLL. cUdI1C1 .-- ioLOfI ... ez r±LLWd>'S to earn sufficient revenue .o cover t-heir total costs, including a return on capital.

331 Conisidered as extensinns oi ..,e aiain syste,rj, holiever, :heir coniri- buJion to general traffic .,ovur,ient wil' justify their continued operation, parcicularly so far as the -&ain-li-e from; Progreso :o Coatzacoalcos is conccrned. The mission has recotwiienled the runninO down of- t:he narrow- gauge branches OL the Unidos de YuLc an. Table 1. GEOGI.tPHIICL DT,'RIBUTION OF .BhRTOUS CCNi'J'I IT3I OR" (percentageS) -

North ".,.Fest G'Ulf of South West Pacific CentralCorth > exico Pacific Tot;l

Airea 21.1 4(0 .'7 14.0 1 '2.1 1.1 1 00.0

Population (19 60) 7.5 1.7 49.. 1.6 12.2 100.0

Agricul tur'a 24.7 27.2 25.5 12.9 9.7 10)0.0

Livestock 10.2 23,.6 37.6 14.1 9.5 100.0

Forestry 2.1 49.6 16.3 17.7 14.6 100.0

Fishing 53-0 6.3 .5 31.1 10O.0

Petroleum Industry 2.3 - 9707 - 100.0

E,ctractive Industry 14. ?7-5 11.7 - e' .1 100.0 Transformation Industry lo.S 3i0.2 49.3 3. 1.5 1(0.0

Re!gistord I iotor vehici-s (1960) 15.S 25.:L 50.3 6.2 2.8 100.0

Highwiay Kni-. (1960) 18.5 28.1 9.1 12.. 1^:.3 1b.0

Note: Sec:orial figur.s based on Value of o-rocdLcLior Statistics, 1955 InAustrial Census.

Sour,ge: Anuario is,tadistico (196-0) andl ;,Lstul oa 1^ lanaiccc-n' los Cr;rinos' (SCT) (:1-55°) . - 107 -

Table 2. LOADINGS iDAUNLDADRTES OF 2iAII FOODSTUFFS BY TATL A1\D Y!,GDONS, (1959) ('000 tons)

North South Product Pacific North Cerntral Mexico Pacific

iaize

Loale.1 290 790 190 220 100 Unload-ed 70 QoO960 80 20

.heat

Loaded 1 ni,8 9 2/0 + + tUnloaded 100 240 1,040 30 +

Bcr.rs

Load-ed 20 100 10 + + Unloa-led 10n lo80 +

Sugar

Unloaded 90 llhO 280 180 50

joue: -+ signifies less tnan 5,000 `Vou.

Source: Aniario Estadi.stico de los E.U.iA. 1960.. - 108 -

Table 3. METAL AND MINERAL EXPOiTS BY POINT OF EXPORT, (1961) ('000 tons)

Place Copper Lead Zinc Iron Manganese

Border Point

Agua Prieta + + - - +

C. Juarez 1 2 97 - 11

Ojinaga - 1 53 - -

Nogales + 1 2 - -

Matamoros - 92 10 + 4

Nuevo Laredo + 31 45 89 +

Pie6-s r - 11 - -

Sea Port

i1lanzanillo - - - - 41

Tampico 21 29 27 40 3

VeEr2 - - - -

Note: + si inifies3 .oss Lhati 5O0 tons.

So)urce: An.ari 3 Estadistico lel Cooiercio Exterior, 1961. Table 4. FRIJOIi-f TO)N-K. S BY RAILVAY - :1952-61 (i:llions)

Y< r C .Y Z (,h FP;j/ FCP N1. _b/ S iC Sur U de Y Total

195' 26 201 1,203 8,119 41 23 9989971 l10:33 ;'3 207 1,222 7,915 JO 48 29

1'54 21 175 1,513 8,:350 3) 58 27 10,233

1l')5 20 138 1,735 8,'723 143 71 21 10,9lol

1956 .2 233 1,594 9,376 136 71 22 11,9i54

1957 23 239 1,722 10,742 109 1.00 19 12,934

1',5° ;.20 225 1,835 1u,467 119 101 16 12, 7`3 0 :1059 :14 219 1,403 10,312 108 111 3 12,20c,,6

1.960 19 254 1,933 11,387 1", 139 44 13,975

1.9'' r16 208 1,882 11,138 129 130c./ 38 13,541 (1 ?52.-61 werneent ircrease) (39 ) (3p) (56%) (3.) (S2, ) (21m) (36>) (36j)

a/ 1952-4' for Kqns-K.' -s .ity, ,exico y Ori-,. anz F.C. nor .tc de Llexico.

b/ 1952-60 inclules F.C. ilexicano.

c,/ :ission estirnmte

oarce. SOCT _ 110 -

Table j . 7VliAGE LFN fG7L 3FD 2hUl L-A1.4 S, 196] (ilometers)

CoahuLla y Zacatecas 110

Chihuahua al PacLfico 205

Del Pacif ico 765

Naciom2les do Mviexico [44.5

Sonora-3aja California 4L5

Sureste 430

Unidos (le Yucatao 155

TOTaL AVr, 16o Table 6. TONNAGLS -IF !.Jj,T 1-ND LZ-BS 'T-A. I:IE LOAID &}i-,E-?OCAL i-Ar-r r,xY - 9>:ri AD 1961 (1000 tons)

Full Le-3 Than Full Less hilar± Laijlway Car Load C-r L.ad Car Load 03r Loau

C. y Z. 243 9 144 5

K.C ''.0.U. ) (Chi.P.)a/ 553 3 965 4

Noreste j 553 5 -

Mexicano )b/ 1,654 20 -

N de N. j 15,910 233 24L,831 109

FOP 1,691 24 2, 408 1

SBC 165 4h_ 2-8 3

Sureste 167 26 292 21

T. de Y. 203 L2 229 9

'OTStL 21 ,139 402 29,157 169

(1*9;Q) ~~~~(0.6,%)

R/ sTollos: City, lexico and Orient and 6oreste de .ex-co were merged in 1,)55 with Chihuahua al -acifico in 1955.

b/ le-icano was merged with b%aciorales d3e iexico as of 1961.

Source: SOT - 1.2 -

Table 7. TONNAGE k OVFD ON MEXICO'S RAILWAYS , TOTAL PRODUCT GROUPS & SELECTED) CONPODITIES

(To]ns mijiUon)

].4'iL i2_ 13951 at aI 1956 zM 12 IM 196C0 1961

2 1. TOTAL ALL TRAFFIt 2 23.72 2 237 2i2 2693I _ L0 28.20 28. 32.16 0.60

2 4 2. Animals & Anaimal Products TOTAL 0.Ll L . 5107 0 3 0-3'Z go 58 2. 2L.2 L.UA e. Cows 0.25 0.26 0.24 0.2,4 0.25 0.19 0.29 0.33 0.24 0.25 0,30

3. I?etroleum & Petroleum Products TOTAL ,3 4.02 " 4.61 4.60 a. Fueil Oil 1.66 1.77 1.92 1.98 2.18 2.11 2.35 2.14, 2.07 2.30 2.41 b. Gaaolines 0.65 0.6,5 0.59 0.67 0.64 0.66 0.68 0.75 0.79 0.77 0.79 c. Diesel Oil - - 0.57 0.61 0.57 0.56

5 4. AgricuLLtural Proclucts l'OTAL MAU 4a2156 5.2= m A3Ci 6AQ "a2. 6a 7.5C! 6sLa a. Sugar Cane 0.77 0.79 0.74 0.94 0.93 0.67 1.16 1.20 1.49 1.42 1.42 b. Maize 0.67 0.72 1.08 1.07 1.12 0.93 1.41 1.79 1.11 1.85 1.27 c. Wheat 0.72 0.8:3 o.86 1.1L 0.82 1.39 1.60 1.45 1.20 1.54 1,71

5. Forest Products l'OTAL ]1.17 Q83 C2A 0.646 0C7 0. 0.88 0.7,' 0822 0.9CI 070 a. Timber in Bulk -0.74 O.5C 0.29 0.26 C0.33 0.32 0.30 0.3C) 0.36 0.37 0.32 lb. RoLgh-worked Timber 0.17 0.27 0.27 0.26 C0.26 0.28 0.27 0.23 0.21 0.15 0.13

6. Mineral Products IlTUAL ' 4L 4769 - 5. i° 5 5 S 6aZ a. Coal 0).81 009 0.92 0.90 0.90 0.94 0.95 0.97 1.03 1.20 1.28 b. Iron Ore n.a. 0.82 0.88 0.64 0.84 1.03 1.21 1.21 1.41 1.69 2.02 c. Zinc Ore & Concentrates n.a. 0.47 0.41 0.57 0.58 0.61 0.59 0.53 0.55 0.62 0.66 d. Lead Ore & Concentrates n.a. 0.48 c).62 0.45 0.42 0.45 C.41 0.37 0.37 0.38 0.36 1. Coke 0.54 0.64 0.57 0.50 0.38 0.45 C.48 0.46 0.45 0.46f 0.49

7. Inorganic Products TOTAL 0.65 2.2 ]A2 192 2Wj~ 3. J g2c 2 JA2; _1.70 a. Limestone & &ypaum 0.01 1.02 'L.01 0.97 0.99 1.15 1.22 1.14 1.16 1.31 1.27 lb. Limte 0.25 0.26 0.25 0.25 0.28 0.30 0.31 0.29 0.31 0.33 0.30 c.- Salt 0.16 0.18 0.16 0.18 0.18 0.21 0.21 0.2 3 0.26 0.33 0.25

8. Industrial Products TOTAL '9i20 5.21D §A2. 2.9i2 726 7 ZL.U a. Sugar 0.64 0.55 0.64 0.76 0.79 0.66 0.79 0.81 0.99 1.14 0.95 lb. Cement 0.68 0.68 0.68 0.7'5 0.89 0.85 1.10 1.06 1.04 1. 07 1.019 c. Fertilizers 0.01 0.13 0.24 0.30 0.45 0.61. 6.23 0.70 0.80 0.78 0.83 d. Iron & Steel Bars - 0.10 0.14 0.1'7 0.21 0.76 0.85 0.76 0.73 0.49 0.82 e. Construction Steel 0.14 0.18 0.96 0.09 Ci.14 0.17' 0.19 0.17 O.12 0.64 0.35 f. Molasses 0.10 0.93 0.16 0.23 0.22 0.17' 0.22 0.2'i 0.30 0.34 0.36 g. Pu]que 0.22 0.23 0.23 0.24 0.24 0.26 0.26 0. 23 0.20 0.18 0.23 h. Paper & Cartons 0. 12 0.14 0.10 0.09 0.08 0.14 0.17 0.1C) 0.19 0.21 0.18

Source: SCT

/Includes Less Than Car Load, Government, and other railways traffic. Table 8. CO'OSITION (O RAILWAY TRAFFIC BY HIU GROUPSD AND COtODIrTIES (Full Car Loads). 1961 ( tons 'I5Oy

Coa;:uila ChlhjAu:z Nacionales Sonora- Unidoa Total all Fercenitage y al Del de EsJa Del de Mexican of Total 7acatecas V'aoifico Pa3c~o Mexico Califoriia SureSte Yucatan Railwzay 1raffic_

1' "Imma Total 171 32 24 _ 1 im

.) Catm.o 33 51 144 31 20 1 297

2. b " *-EI" Toatel 3 137 137 4S202 i6l 47 68 6707 22. miwl- ~ ~ ~~~48 ~~~~~~563 4 133 ib) fl1s 16 43 95 1 1 158 ID Seigar Cane 66 1330 1422 II) ainley 43 159 4 1 209 e) ibrag8 1 18 104 246 6 6 448 f) msm 10 31 99 1 150 ig Mmaj- 1 33 137 1COO 3 27 20 1270 b) Cottonseed 10 63 37 15 124 :L idbsat 7 592 977 91 5 19 1710

J. 5 3u 1 AL1 318 1i 1 34 4 701 2

4.l 1 70 288 4C98 6 18 4Q 192. .)Gag;olins ~~~~~~ 76 ~~~~~~644 44 ~~~~~~~22789 b) Fwil Oil 7 16 57 2297 35 2413 a) Diesel Oil 21 81 457 4 565

5. tiinaral Total. i~~~~~~22. 924 5798 1w .7-Ma> ^ c S1 47 1230 1278 b) Colce 17 1 474 492 a) Iron Ore 24 1992 2017 d) Colpper Orew and Conceintrates 18 5 66 9C' e) laaid 38 11 307 357 f) Zinc 24 151 23 4.59 656, g) Other 1 33 851 911

6. AiSEi4 -to Total 1 48 12 6 6 I26 a) Linaestone, and Oypsin 27 8 1234 1269

7. Industrial Prcuct! jTotal 176 6 61S7 86 162 73732C! a) Stsel Prcoducts 4 1.93 33 229 b) Steel bars 17 e0OO 81s c) Constructional Steel 1 2 331 1 347 d) Sugar 55 155 703 12 4 13 953 e) Molasses 19 55 2.79 5 365 f) Cement ls 30 1004 32 2 1088 g) Fertilizers 20 77 638 35 1 827 b) Beer _ __ _1 - -__ 1.5 j - - -_7_- ______h,rsnd lotal 96896 2 48 24 288 292 _ 229 296w

Percentage of Total by Ra:Llways 0.5% 3.3% 8.3% 85.2% 1.0% 1.0% 0.8% 100.0%.

Note; Figu,res wilL not total because of rcunding and irnclusioni of traffic Dn private railways in total Mex:ican RaiLway traffic columan. Tables S. PASSENGER TRAFFIC STIATISTICS, 1961

Passenger Average Average Income as Average Average Deficit Total Total Distance per Percentage Cost, per Reverlue per per Fassen:ers as ser er Passenger of Tota2 Passenger Passenger Passenger Cc rrri eKilometer Journey Incm/oa r Kilometer Kilometer (inillions) (millions) (kilometers) (percent) (centavos) (centavos) (centavos)

Cudjhuila y L>catecas 0.08 4.9 59 5.1 3.9 '.6 (03

Chihuahu:- al Facifico 0.29 33.1 115 6.3 14.6 6 '7.8

De1 Fac fico 1.00 520.2 520 12.0 20.6 7.0 13.6

rntfer-C;lLfornia 0.19 1.5 8 4.4 10.4 7.7 2.7

N2cionsles de Nexico 29.73 3,361.6 113 8.7 9.7 3.6 6.1

Ei:cozari 003 .4 78- 15.0 1L0-7 6.6 4.1

Oc-cidental de TMexico 0.fl1 0.1 13 16.8 24.5 9.9 14.6

So n Q~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Sonora-Baja Cali.fornia 0.50 217.1 432 40.2 7.9 6.7 :1.2

Surmste o.66 87.0 131. 20.5 0C.0 6.3 3.7

Utnidos de Yucatan 1.11 59.7 53 30.0 10.9 5.2 5.7

Totals 33.66 4,287.6 12' 10.1 11.0 4.3 65.7

a/ I xclusive of rcvenues r ceivod from express, meail and ba gc.services prov i.ded on passenger trains.

Source: S9'm Pass'r. alnd Table 10. T _MP PRCE:DU5fKNGQ AtD REVENUE FREIGHT TON-KILOMETERS A RsventLe Freight TOTAL MEXICAN RAILWAYS G.N.P. Ton Kmzi (BiLlion) Pesos (Billion) -~~~~~~~~~ ~~~1947? 1970 -

-3t3 YrLYr v r t I - - 300 YEARLY l l - G.N.P. 1(238.9)

20- _-. . . _ . _ _ (197.2) -- _ _ 200 __ - _- - _ ,._--.-*Freight . t.k.m.

- - - .~~~~ -. ~~~ (19.3)

-~~~~~~~~~~~~~~~9C Ol . ; ~~~~~~~~~~ ~~~~ _--_-f-- -__ _ _-_ __ - _-1oe

9 ^ ~_ __ :-~ ___c *8 ¢4,-- 8 -f ------__ -- - __-- -90a

7.L? _ _ ._ __ .- 7070

5 ---- ___m - __ ya W. 4 t1t4re0~~~~ -----.. ~~ ___- ~~ ~~______~ ~~ =~ Pa=aa. - -= =-__ -___ -_- -_ _-P8

' (;~ .) __,_. ,__ _ __- ______)

U.1t9) 4

Ebor Freight Tons (Xj) and G.N.P. (X2) i = .4.34 + 0.Ob27X27

For Passenge:r Kms I I I Y. = 3.43- + 0.103 X (Origin 1954, X units, 1 year) '47 '48 '49 '50 '51 '52 '53 '54 '55 '56 '57 '58 '59 '60 '61 '62 '63 '6;4 '6i5 'la6 '67 '158 '659 '70 '71 I Based on nominal 5% rate of growth in G.N.P. - 116 -

Table 11. LOCOMOF'IiVE REQUIRHEMENTS FOd T L F. C. 2iCLX\KLjS DE EXICO, 1965

A. For 0t8:1" Gauge Lines, Assuming Complete dieselization.

MAillions

E.-tirmandc neL ton,/kms. roduhretive. both narrow and star,dard augles 13,180 ct.i'riat.l net. ton /krnc: nnn_nrnAinitJ v- 780 Estimated total net ton/kms.

Deduct: Traffic carried by ixel trains 790 000 ,000 narrow gauge 40,000,000 760

Net ton/kns., estinmated, standard gaage freight trains only 13,200 Gross ton/.kms., estimated (2.02 x net ton/kms.) 26,66h

Dicsl locootives re-uired fo vce, standard gauge, at 257,000 gross ton/kms., per day 281h

B. Standard Gauge, All Services

Locomotives in Use: Frreigft: as a'bove cQl Passenger: no increase 133 Msixed: no increase 90 Yard and Works Locomotives lho Tota'l in Use 64 Under repair, 15% of in stock 12:L Spare in sheds, 5 of in stock 40 TDtal ztock required 50T

Actual stock at t4arch 12, 1963 -ain Line Diesels 492 Yard Locomotives 107 Total 59 2

Additional locomotives reqlired for cor,.mlete dieselization of the Nacionales de lie.ico standard gaage, to eet the esti!:ited traf- ric rencuirements Jt thie year iJ03: iaan-line Locomotives 159 Yard and i;orks Locomotives 5() Total 209 Add: Diesel Locomotives Required for ,xisting Marrow-Gauge Trackcs, a.ter -!ideninr? co Standard Gauge 1(

Total L.st':nat-d AJditional Diesel Locomotive Requirements, 219 TJaciornai-es de fMexico, 190_3-65 Table 12. COIV>PAjjISOj OF RAI]LWAY WORK DONTE PE.PR .AN Ei'IPLrYl2'D

M3ainl;enance of 1 ainterance of Operation of Administrative 1,.ay a-d :1or-ks: Eqjuippcnt: EquirDment: arLd I§nnagerial M4en Employed lVen Zriployed per Men Employed Staff ,-ccnt of .cailway; 'Of: per Track/kns. 1,000 Train/k-s. P r 1,20) Tr?,in/km.s. rctal StafI

Mexico:

Nacionales .81 .46 .44 10.7 P?CiVfLCo .95 .28 .45 17.0 (-ihuahu9 al Pacifico .47 .47 .51 7.2 '-zzmnora-5-ja California .69 .40 .50 12.4 .lIreste 1.34 .51 .60 15.3 Umidos (le Yuc:tan .50 .27 .52 13.1 CoahuiLla y Zacatecas .38 .29 Averaige M'iexico .80 .o43 .4 11.4

,Oorocco .89 .33 53. Poland 1.54 .37 .48 3.3 Yugoslwi;a 2.7C .37 .46 4.7 PortugJal 1. .34 .3Y 2.7 .:ustria 1.66 .30 .39,1 5.5 Fr .96' .26'1 5.2 J;-an 2.33 .22 35 6.o Gl.- -{t I .l . 25 .25 9.4 L -~ly 1.11 * ;o1 .26(; 6.2 Firland .7:;: .21 .25 2.8 Si,Tede]-. .591 .16 .21 4.6

So!uirce: ConLntry -'v;e.|es from Int-rnational Union )f Y :f. , 1960. Table 13. PEZOPOSED A 1IHCOMENDED :INFrMENT PROGR,AM 196)-65 NAClOINALES DE MEXICO (nil:Lica. ;,f p7eas'7

0 ragratm Nt-'±slon T'^ r, ,-0, :E ;DLr_- r;aGD\y A'0R 1°n ; FCR1FG EXOIrCLANGEwE' UIREIE;IS (163 _ 1.5i _b ritt d , .cc:, e ndc- )9o )',47 Toa ( - , Fn___ .,______1. ______BllILi ______INGS______grtt i-i 70fj:` . ditionaL 1 3 196r 3l65 1960 1?6L 1965 Total 1. BIJI1LEINGS a) General 96.o 58,or 3.5 6.5 10.0 24.o 2)4.0 - - - - b) Hospitals 26.5 26,5 5.f6 0.9 6.C 10.0 1O(.0 - - _ c) Houses 15.1 15,1 1.LL 1.7 3.1 6.0 6.0 - - d) Admin. Officets 85.0 .. ------e) Workshcps 266.9 266,9 21.9 25.0 L6.9 110,O 11(.0 f) Passenger Stations 109.1 25,,0 1.3 3.7 5.o 10.0 10.C - - Sub--TotalL'. c 391,,5 33.7 3;7.8tTWT5 OyI o0 - - - -

2. TRACE WORKS a) zBallast 60.0 6o0,0 16.8 3.2 20.0 20.0 20.0 - - - b) Rails and Fittings 939.6 465,5 122.1 20.9 1IL3.0 162.i7 157.8 1)43.0 81.0 80.0 30Lt.0 c) Sleepers 390.O 311L.8 22.3 :32.5 5).Z 130.( 130.0 - - - d) Earthworks 27.7 18.0 L4.9 1.1 6.0 6.0 6.0 - -- e) labor Cost of Relaying 379.0 197.0 59.7 1-7.3 77.0 51.0 59o. f) Replacement of Bridges and Culverts 79.5 39.9 3.9 L.o 7.9 S.'O 1,.0 - g) Track lainterLance Equipment 83.6 25,0 .5 3.5 5.0 10.0 10.0 5.0 10.0 10.0 25.0 h(ii) Widering of gauge 16.0 16.0 _- - L.( 12.0 h) Improvements to Curves a-Td Grades 173.9 33.1 1.9 5.n 6.9 17.1 9.1 - - - - i) Yard Extensions, etc. F5.7 L o,.5 11.2 2.3 13.5 13.5 13.5 - - - - *) Supervision, etc. Sub-Total 2 , , r T; - 1,-4 7 9 336..3 63 0. . Z L 91.09 90.0 329.0 3. LOCOiOTITE; AND FIOLLING STOCK a) I.ocomot.ives 414.3 l14'.3 1B7.R _ 187.8 185.o i7.5 187.9 185.0 141.5 L14L.3 b) Nlotors for Locomotives 61L.2 614.2 _ 6)4. - - 61;.2 - 6)4.2 c) Passenger Cars 1,006.8 223.0 )4_.1 8l9.11 8f9.5 6)4.1 77.4 77.5 199.0 d) Freight Cars h85.2 1)4)4.0 - _ - 72.0 72.0 - e) Camp Cars 21.0 21.0 - 10.5 10.5 f) Passenger Rail Cars 250.0 25.0 - 25.0 - _ 25.0 25.0 g) Work Tr-ain Equipment 15A. 15.6,-; - 9.2) 6.2 3.0 3.0 h) Other Sub--Total 906. 25.Q31.9 - 211.9 LTe.3 219.7 231.9 35Lh 119.0 ,,5

4. PLANT, 'ACITINERY AND TOOLS 11)4.0 57.9 o.o 7.0 7.9 25.0 20.0 7.9 25.0 25.0 57.9 5. TLECOM-UNINCATIOlZS 7P7.2 2-3.7 ?9.7 - ?9.7 )22.0 127.0 19.7 82.0 82.0 183.7 6. TERM[NAL I!4PR0VU4ENTS ------7. RIGRZ OF WAY 7?.3 57.5 0.3 - 0.3 31.0 26.2 - - - - 8. KFEL AND 'ijATER INSTALLATIDNS 26.8 26.R 1.5 5.3 10.0 1t.0 - - - - 9. HOSPITAL EQUIPM1T P.C 8.o 2.0 - 2.0 3.0 3.0 2.0 3.0 3.0 8.0 10. OT Ei 3.9 3.9 3.9 3.9 - - GRAND T!TAL, ,9i.O * 2 139.9l, FI,OO .3 3.FP1 Table L6. PROPOSED AND RECO1ENDED INVESTMENT PROGiRAM, 1963-65 F. C. DEL PACIFICO = 18.8% (millions of pesos)

Mission TOT.AL PErO`eENnt8 PPOC'1iy,^U FY Q63 FORFIGN ERCHAN!GE 5FQ'7iENENTS (16-) 0 Program pcorlmend- 196' 1963 1]963 ',,bmitte.i ed Progranp zppmnoved '1Id3JticnAl Total 1061: 1a96 1'413 1 q.61. 1965 TOTAL

1. BUTLD-INGS a) Gen eral 11.5 11.5 3.0 - 3.0 9.8 2.7 _ - - b) Hospitals 6.6 6.6 6.6 6.6 - c) Houses 17.6 17.6 3.9 - 3.9 7.0 6.7 d) Administrative offices ------c) Wo akqho_s 16._ 22._9. _.7 - - - _ Sub-Total ,52T__l1I ____ 1 .2-1 T -

2. TRACK WORKS iTBa'LIast l1U.5 1L.5 5.8 _ 5.8 5.9 2.8 b) Rails ani Fittings 72.2 3.L 3. 3. - -3- - c) Sleepers 7.Is 7.LJ o.5 .c 1.0 6.4 - d) Earthworks 19.0 9.0 2.6 - 2.6 3.2 3.2 e) Labor Cost of Relaying 10.8 14.2 0.8 - 0.8 3.14 - _ _ _ f) Bridges snd Culvertsa 29.7 5.1t 2.0 _ 2.0 3.4 - - - - g) Track Maintenance Equipment 7.5 7.5 2.0 _ 2.0 2.PA 3.1 2.0 2.lJ 3.1 7.5 h) INprovement to Curves & Grades - - - i) Yard Extensions, etc. J-) Supervision etc. - - Sub-TotsL 161,1 cl ^ 17.1 0.5 :L7.6 214.7 9.1 2.0 2.f 3.1 7,

3. LOCOY)TIVFS AND ROLLINCISTOCIK fTjLomotives b) Motors for Locomotives 36.,1 13.1 - - - - 13.1 - 13.1 13.1 c) Passenger Cars 118.2 23.5 o.5 3.0 3.5 10.C 'LO.O 3.o 10.0 10.0 :23.0 d) Freight Cars 49.7 1,9.7 - - - 23.7 26.0 - - - e) Cajnp Cars 26.6 9.6 3.2 _ 3.2 3.2 3.2 - - - f) Paissenger Rail carm 50.0 - - - - - g) Work Train Enuipment 44 h.0 0.3 0.7 1.0 2.0 1.0 1.0 1R.0 1.0 [.0 h) Other Sub-Total 2814.9 99.9 )!.0 3.7 7.7 38.9 53.3 14.0 12.0 214.1 110.1

14. PLANT AND MACHINERY 8.7 7.0 0.7 0.3 1.0 3.0 3.0 1.0 3.0 3.0 7.0 5. TELFCilCATIGNS 8.5 o,9 0.11 0.5 0.9 - - 0.9 - - 0.9 6. TERMINAL IMPROVE"IENTS 92.9 92.9 21.2 8.7 32.9 30.0 30.0 - _ _ 7. HIGfH OF WAY - - - - - _ - - - - 8. 1U7RU W-AER INSTALLATIONS ------9. HOSPITAL FLQjTPMENT - - 10. RIVER COLORADO BRIrr.E - - _ _ _ _ _ 11. i!3LLANEOUS -o0.3 &.3 )0.3 - 0.3 _ _ _ _ _ Less Proceeds from Sale of Scrap Rail -16.8 __ _ _

GRANT' TOTAL 592.0 295.8 63.1 13.7 76.8 lli.8i 907.2 7.9 17.14 30-9 55.5 Table 15. PROPOSED AND RECOMMENDED INVESTMENT PROGRAM, 1963-65 SONORA UAJA-CALIFORNIA (millions of pesos)

_ TCiT:L -B; 1 _ssion 'fQr0, 6 FOFLION EXYU\ 'T R7 4 'I6EaNT (1963- Program Recomnmend- 1963 1963 ToalR 0iub-ditted Pd P-ograr kpp),ved ti-1itional 3963 196L4 1965 296, 1961, 196' TOTUP, 1. ERIL;DINGS 7a,General . 0.8 0.' 0.1 o.8 ------b) Hospitals 2.9f 2.8 0."2 - 0.2 2.6 c) HoUses 9. 9.3 1.1 0.9 2.0 3.7 _ d) Adninistrative Offi ces ------_ _ _ _ _ e) Workshops 1. 1.5 - - - 1.5 -

f) Passenger Stations c_6 c r. 3.3 f . -).2 -__- ______Tot .X9 (.:t -1.n '. ' e__ - - - =

2. TIR32CKWORKS

aT,,allast 1E.4 .14 - - - 1.14 b) Rails snrd Fittings '3.9 13.9 - . >.. 1.0 3C.3 _ _ _ _ c) Sleepers 359.3 39.3 C.1 ):.? .n. 1-5.0 -c 'i) Barthworks .8 n.P r1, _ C .L 0.14 e) Labor orst of ?Re)lavLng .7 7 O. 3 -.-. n. ).22 f) 'Bridges and cilverts 1I.7 6.4 r".*1 - 0.14 R.O 3.0 - - - I g) rrack "aintenance Er Aipsent '3.) 3.l4 0.; .1. 1.6 Oc.4 1.5 1.5 3.4 h) Thmprovement to Curves 2 0rades ------i) Yard Fxtensions, '-tc. 1.3 1.3 0.6 _ 0.5 0.14 0.4 F _ _ _ j) :Supervision, Etc. _ _ _ _ otS_i- C R7 7.0 f.2 1"9 , - 1.5 3.11 =

3. LOQOMNOTIVES AND .ROiTLINO 'TOCK aTThocomotives 2,.5 2.5c _ - 2.5 2. 5 2.5 b) Motors for Locomotives ------c) Passenger CsLrs 13.0 13.0 - 7.1 6.9 _ 7.1 c.9 13.0 d) 'Freight CarE 1.7 1.7 _ _ _ 1.7 e) Canp Cars + - - _ + f) Passenger Rail Cirgs g) Wo-'r Trara Fi ipment .o. 0.14 - - -L C).-Lo.1 - 0.4 h! Cther - S,b-Tot4l i - - 11.7 _9 - 1.2 C 5.9

I. FLA' iin'Y L1.2 14.2 - 1.'.3 1.6 1.4 1.3 1L.2 5. TELE-''c,'r" ;T T" 7 _-l _-. ______- 6. TFR?-NRL I.Pz9C !-ttFT-

7. rr r6v - 8. 7c T' .''':ATFR' T"'TU ' "' J S

10. RIVFR _CLC'7 R1 1 13.016 - _ 6.5 - -

_ -7F TL'1T 11.7 136. 30.8 Q.7 20.0 6.6 '2.l 1.9 12.9 8.7 23.5 Table 16. PROFOSED AND RECOMMENDED INVESTMENT PRoGRAM, 1963--65 UNIDOS DE; YUCATAN (miilions of pesos)

Mission TOTAL RECO!.ENDED PROGAM FOi)63-65 FOREIGN 1!:XCHANGE REQUIRE Program Recoimmended 1963 I1963 I'otal Sutmitted Appro.red 15h3 1964 1965 193 .d.tional 1965. Totld

1. ERUILDINGS EL) Geriera.L 0.2 b) Hospitals 0.4 c) Houses 2.1 Nil d) Acdministrative Offices e) Workshops 2.5 1') Passeneer Stations 0,6 _ Sub-Total S.8_L_

2. TRACK l1ORLS al) BaLLst 7.8 b) Rails and Fittings 76.5 c) Sleapers 15.8 cl) Eartbvorks 6.9 Nil See Text a) Labor Cost of Relaying i') Bridges and Culverts gT Track Maintenance Equipment 0.4 h) Improvement to Curves and Grades 'L)Yard Extensionsi, Etc., _ Supervision.S1 Et,c.G - _.2 _ _6__ _, Sub-Total 1Zn.o_…_

3. WHOTIVES AJID ROLLING S"TOCK I7 DotivtS 13.2 b) Motors for Locc. motives c) Pasenger Cars 2.2 Nil d) Freight Cars 4.6 e) Camp Cars r) Passenger Rail Cars 1g)Work 1rain Equlp- ment h) Other- Sub-Total '_0 - - -

4. LANT AND MACHIN 1.0 5. rELECOHMJCATlON 4.1 6. TERINAL IMPROVE)INTS 7. RIIGHT OF WA! Nil 8 FUTELAND WATT Tlms,TAT LA TI ONS 9. HiOSPITALEQUIPMENT 0.7 10. IUVER COLORADO BR]DGE Ses Text

GRAND TOTAI, 151.9 Table 17. PROPOSE:D AND ECOMEC DED INVEST1ThNT PROGRiM, 196365 F.C. CHNJHUAHUA AL rACIFICO (millions of pesos)

-- XrMssionl t 0 TvTiI 'p:>-ETh rr"^i't ECRfWT rORFN00EI- ACCRAN0E ?EQ'JI;' Program ReG-eied Th 3 Tn3 (1903 -b Snb'"to______d 're-ogr.n :..-ro ?ed '1 -tt-- -:l - 2 1 t/964 1965 19636365 1969 TCTAL

1.@ BUZDlI?N%9 a,'Gern e.0 2.' C.0 b) Hospitals c) :rouae.s 3.3 3-3 2.l 2.1 2.1 d) AdrTnistrattve Offices - - e) Workshops - f? Pa3senger Stations 0.6 0.6 Sub-Tota0l _ 0.3 0.3 C. e - 2 2.? 2 . TRACK WORKS Ball at- 16.r) 15.0 3 0 6.5 6.5 b) Rails and 'it ings 163.5 .o c) Sleepers 7.0 30.0 30.0 3.5 15.0 35.0 36.0 36.0 6.0 15.0 15.0 33.5 d) Earthwiorks 3.7 3.7 0.7 1.5 1.' e) Labor Cost of Reliying 2.0 9-3 1.3 3.8 3.5 f) Bridge,s and Oulverts 3. sA1.0 1.3 1.3 g) Track M'aintenance Eiiil)prent 3.5 c 0o.5 1.5 h) Improve:rent to l 1.5 0.5 1.5 1.5 3,,5 rf rves5 : Scars 8.o EO 2,0 3.0 3.0D i) Yard Extensions, Etc. .31 - 0.13.l iL)Sup ervi sion, Ftc..

3. LOCoMTI'rsZ AND RCOLING STlOCK iaTLcomoEtiv,es - c b) Motors for Locomotives c) Passeriger Cars c 5.c c e d) Freight Cars 6l. tf.c ':/. - 60.5 e) Camp Cars - r.5 5.5 f) Passeriger Rail Cars g)\o:0rk Traln T huipmeunt - - OtherO

FL AND 5uNTMACHI 'C. PJN ] -i60 'DYCIl - -

7. %L o - F"3, 8. A;D - -LA-i-- 9. Q4E T-m TP -. rJ. ~~i &.i _-R _ _ _-_ ~~p rflrI ¶T-2r--5.- __2 2 ____ 1__~T~ 3 t )76JiT4 rw0 22. l (T 16 7 Table 18. PROPOSED AND RECON!MED INVFSTMENT PROGHAM, 1963-65 ?.C. COAHlIIA Y Z7LCATECJAS (millions of pes0s)

Mission TOTAL RECOMMENDED PROGRAM FOR 19-65 fORFIGN EXCHANGE REQU REMENT (19=5 Program flecomm.ended 1963 1963 Total Submitted ogrs Approved Atdditioal 15S3 1o6. J 96f 1963 1L96L i]965 Total

1. BTJILD'TNGS a, General Q.1) r.l 0.2 z b) Hospitals _ _ c) Houses l.3 1.3 n/a - - 0.7 0. - - - -- d) Administrative Offices e) Workshop8 0.2 0.2 _ 0.?O _ f) Passenger Stations 0.8 n.e _ _ - - O.), o.. - - - _ Sub-Total 22L 0.1 0.1 1.3 1.0

2. TRACK WORKS a Ballast 0.2 0..2 - - O.? b) Rails and Fittings 9.P 9.8 _ _ 1,.9 1.9--9 c) Sleepers 3.5 3.5 _ - P 1.7 d) Earthworks e) T.nbor Cost of Relaying 1.I l.l r/a - 0.7 0e.7 f) Bridges and Culverts 0.1 Q.1 - - 0.1 - g) Track $ainteyance Equip-ent ).2 0.2 - 0.2 - 0.,2 h) Improvement to CNrres &Grades - i) Yard Extensions, etc. _Supervisioan etc. 0 _ 5 1 _ _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ----__Q O.,2.2-

3. LCCOm(CTIVES AND ROLLIN( ',T-CK aJ Loconotives 1.1 12 l,l 1.1 - - 1.1 - 1.1 b) !lotors for Locon-t Ives - - c) Passenger Cars d) Freight Cars *..7 .7 n/a - - 0.7 e) Camp Cars - f) Passenger Rail .arsr- g) Work Train Equ ipment, h) (ftlher ------Sub-Total 1 ° °.2 1.1 0.7 - 1.1 - - 1.1

h. PL AkNDMACHlU1iU '*3 -- -.3 - - 0.3 °.3 5. TLEEC0( CATIOi.2 . - - '.1 -- 0.1 0.,1 6. TERI=.7NA2L P O'0EJEN ------7. =Gt OFWt ------8. fLULF :TA N'T! NS - - ,T- - - - __ _ 9. ! I - - - _ _ _ _ 10. RIVEJL_LUaORJDO BLR,E - -

_S ;- . n 1-fc _I.2 1. 10- 8.3 1.1 _ * - _ .7 Table 19. fROPOSID AND RECOMNIJDED INVFSTEIT POGPRAM, 1%63b5 F.C. DEL SURESTE (millions of pesos)

ijs sEin T0TW MECON2ED_FPROGRARI_F0rPF pH9b3-IGN £xcRlr BsQ TEvE Sa )IR19i9-S) Program Recomrmend- 1973 T 1i F Total Soibnfitted ed Program. Approved Additionel 1963 1ip4 196: 1963 16L i965 T'otal i!I DINCS a) General b) Hospitals 1.l c) Houses 13.0 d) Administrative Offices - .'/A e) Workshops l.L f) Passenger Stations 0. -Tota L lo.t-a

2. TRACK WORKS a) BalLls3t 211.] b) Rails and Fittings 29.1 c) Sleepers 17.1. d) Earthworks - e) Labor Ccst of Relayirg - N/A f) Bridges and Culverts' 3.1 g) Track Maintenance Equipment - h) Irmproverment to Curves & Grades - i) Yard EXtensions, Ftc, - SEE TET iJ) Sure rvision. Etc -… Sub-Total 7_ . L_

3. LOCOMOTIVES Alt) RIDLLING STOCK a) Locomotives b) Motors for LocomotiLves - c) Passenger Cars - Nr/A d) Freight Cars e) Camrp Cars f) Passenger Rai:l Cars - g) Wo;rk TraLin Equipment - h) Other Sub-Total

4. PLANT AND MACHINERY - 5. TELECO]nUNICATIONS - 6. 'ROMIENTS___N_jI - 7. RIGHT OF WAY _ 8. FUFLPAlND WATER INSTALLATIONS - 9. HOSPITAj E4UIPMENT _ 1.0 RIVER -COLOHAD7 BRIDGE - See Text

= - - GRAND TOTAL 90.19 20040 ' = ' - - ' = Tah].e 20. PROPOSED ANVJ PJV(EH EIDEY r STM-!fL-T PiROGRAM FOR 1NF RAILWAY C'ONSTRUC'TION 1963-65 7millions, of pesos

ProgTam Mi,ssionr R.0T)I hlD TOTAL L/'PT\DITURES,L Submitted Recormmended Appro io. Fa.L Total Project to rM[ission ?roc1ram 196)3 1963 _T 6

Mexico - Oueretaro 50.0 50.0 -250 25.0

Guadalaja.ra -, Saltillo lst. stage 190.0 -

Esperanza. - Cordoba 90.0 90.0 -- - .35.0 55.°

Mexico - Acapulco 1st stage 165.Ci 1.65.0 _)0 l5,,O __ 5.0 60.0 60. o

TOTAL L13,.n 3 0.0 L1.5,o 45.0 120.0 14lD.0

, ')flEIGPT EY,X GiA-T ,TE1RENNTS, 19' 3-65 Proj ect l9719 9F 196wi

Mexico - Queretaro - 8.o .3.0 16.0

Guadalaja.ra - Sal.tillo 1st, stage -

Esperanza. - Cordoba - 11.0 1i3.0 29.0

Mexico - Acapulco 1st stage - 21,0 21.0 _ .o()

TO TAL - 1l).0 )±7.0 97.0 Table 21. 1BREAKDOWNOF RECOMMENDED INVESTIOENT "ROGRAM BY MAIN ITEVIS BY RAILWAYS 'mil7:lions of pesos)

Coahuila ChihuLhua Sonora- Uniclos Total Total ,le Del y al Baja bel de SCT All MsJcico _na _____- ZPapw ___Faifi co _ Clifornia ste Yuca1 an Railways Railways 1. TRALCKWORXS

a) Ballast 60.0 14.5 0.2 16.0 1.4 See Set) 17.6 92.1 b) Rails and Fittings 4.65.5 3.4 9.8 67.0 33.9 tect text; 110.7 579.6 c) Sleepers .314.8 7.4 3.5 36.0 39.3 78.8 401.0 d) Earthwoiks 18.0 9.0 3.7 0.8 4.5 31.5 6) L4bor Cost of Relaying 187.0 4.2 1.4 8.3 0.7 10..4 201.6 f) Bridges &CiLLverte 39.9 5.4 0.1 3.0 6.4 9.5 54.8 g) Track Iaintenance Equipnient 25.0 7.5 0.2 3.5 3.4 7.1 39.6 b) Curvee &GraLde Imlrovemeints etc. 33.1 - - 8.0 - S.0 57.1 i) Yard ]BtensionB, fitC. 40.5 _ _ 0.1 1.3 1.4 41.9

SuLb Total 1,8 (41.0%) 5A.j (17.4%) 15.2(76.8%) L",6 (66.9%) 87.2-(63.7%) 248. 0 l1499-2 (39.5%)

2. LOCOMOTIVES ANl) ROLLING STOCK

a) Locomotives 414.3 - 1,1 - 2.5 3.6 417.9 b) Motorie for Locomotives 64.2 13.1 - -' See See - 77.3 c) Passenger Cars 223.0 23.5 5.5 13.0 texct text 18.5 265.0 d) Freight Care 1U4.0 49.7 0.7 60.5 1.7 62.9 256.0 e) CEmp Cars 21.0 9.6 - - - - 30.6 f) Passenger RaLilCarEl 25.0 - _ _ 25.03. g) Work train equipmetnt 15.4 4.0 04 0.4 19.85- H

Sub Total 906.9 (31.0%) 99.9 (33.8%) Lg(9.:L%) 66.0 (30.3%) 17.6 (12.9'0) 85.4 1.092.2 (28.8%)

3. BULDIMNS

a) GenerSLL 58.0 11.5 0.1 2.0 0.8 S3e Seei 2.9 72.4 b) Hospitals 26.5 6.6 - 2.8 texct text 2.8 35.9 c) HouBegi 15.1 17.6 1.3 9.3 13.9 46.6 d) Workshops 266.9 7.7 0.2 - 1.5 1.7 276.3 e) Passenger Stations 25.0 - 0.8 o.6 0.5 1.9 26.9

Su,b Total 31)Si (13.4%) 43L.4 (14.7%) 2.L(12.1%) 5._ (2.7%) 14.9 (10.9%) 23.2 458.1 (12.1%)

4. TELECOMEUNICATIONS 273.7 '9.4I) 0.9 o,1 _ _ 0.1 274.7 15. TERMINAL :MPR0VE4EnTS - 92.9 (31.4%) - _ See See - 92.9 6. PLANT MACHIJERY A;JD TOOLS 57.9 7.0 0.3 _ 4.2 text text 4.5 69.4 7. RIGHT OF WAY 57.5 - _ _ _ 57.5 8. FM,. AND WATER I:NSTALLATIONS 26.8 - - - 26.87- 9. RIVER COLORADO BRIDGE - _ ,_ 13.0 (9.5%) 13.0 13.0 1O.HOSI'ITAL EQUIPMENT 8.0 - - - - 8.0 ll.OTHER 3.9 0.3 _ _ - 4.2

1L2.SURESTB REHABILITATION - - - - - 200.0 200.0 200.0

TOTAL )926.0 295R 19- '175 062 200.0 -5.2 j4 76.o (LI0o.0%' (100.0%) (100.0%) (100.0%) (10o.o%) (1520.0%) Table 22. OPERATTNG RESULTS

F. C. NXCIONALLS DE 'YTEXICO: 1955-61os/ ( illions of pesos)

1955 1956 1C >358 1,59 1960 196i Onc rating Revenue t]r ", -'L-1 ;!t 708.2 783.6 829.7 .301.3 94,3.6 1,165.0 1,1.38.3 Pass aig;er lO9.7 11.9 109.' 9Cg8. 8 204.0 119.3 119.2 Express 53.2 60.4 59.1 37.5 553. 62.5 67-3 Haulagze 1o. 6 11.2 11.8 li.6 12.6 13.9 13.- Demurrage 4.7 5.1 5.6 (.4 7.1 12.3 5*9C Sundries (inc. Mails) 12.1 11.7 14I. 4 9 13.6 16.4 1I,'

TOPTAL 898.5 933.9 1,030.2 9, .5 1,136.9 1,389.7 1, 359-C, Ot' -iCng Expanses Way ?CStructures 1783 3 201.2 222.9 242.9 263.5 270.2 .Ž .9 Equimrnent 284.3 2 ?7. C) 297.9 337.3 34-1.1 377.P '20. Trafffic 8.d * 10.0 11.9 1-.6 1') . 13.2 Pransport 356.2 372.2 373-5 41 .2 50C4.2 5.-3-47.3 Ad1mini stration and General Charges 127.1 140.5 156.9 '190.) 5.0 26.9I01.6 Ecqu pnent Rents 82.7 99'9 1.6 31 . 7 " 3 .4 57.2 4'.9 Miscellaneous 15.3 _ 43 13-3 13.2 1.7 22.4 1.7

TOTAL 1,(C52.7 l,ll4.6 1,166.1 1,','.1 ' r . 1,l7 .5 1,624.0 N'et Operatuing Sur <1us or (defiCtA) (C154.4) (131.7) (136.0) (305.5) (p5: .7) (183.3) (264.9) Int-'rest Charegs 444..,7 44,. 1 C. .1.4 9%.6 112.1

Net uicE!;Lit 191.1 175,3 1 i. .33 329 29.l4 377.0

8/ Includes F. C. Mexicano 195,5-60.. Table 23. CPERATING RECSULTS

F.C. DEL PqC]'FIC0C (1illions of !esos;) 1956 1957 1958 19;59 L960 1961 1'962

C)PeratinZ Revenues F5rei -,ht 177.4 202.1 217.0 204.9 264.9 233.5 232.6 PasSenger 17.7 20.6 23.8 29.3 32.5 36.2 39.3 Ecyress 6.3 5.3 5.7 5.5 7.0 8,.1 3.3 Ma ils .1 .3 .2 .2 .2 .2 .2 h:llhlage charges 2.9 3.0 3.2 3.4 4.3 4.3 4-5 Jelmurrage 1.7 1.5 1.8 1.5 1.Q 1.2 1.3 vales of ice 1.2 1.9 2.0 2.5 2.1 1.4 2.2 Sundries 1.2 1.2 1.2 2.2 2.0 1.9 -L.6 TOTAL 203.5 235.9 2514.9 249.5 9]4.8 286.8 290.0 0peritin( e&xpenses Way and works 37.7 39.0 41.2 40.1 *. 47.8 57.0 Eq8uipment 37.9 3')1 39'3 36.9 4'.3 55.4 56.5 0 Traffic and TranspoIt 78.2 7.'.?7 SC.56 30.0 83.9 90.,3 92.0 E:,mress 3.5 3.3 3.8 3.7 3.9 4,4 4.5 General charges 1.0 1.5 1.6 2.4 1.0 *8 L.6 Adrministration 10.3 -1.5 12.7 15-3 17.7 19.7 2L.4 Depreciation and renewals 28.8 37.7 46.5 53.6 56.0 58.9 582.6 MXedical and haalth servic-s 4.6, 4.7 6-5 G.7 7.1 10.6 13.1 Sickness and accidents 4.9 4. 5.7 4.'° 3.3 3.7 4.4 In1demnities and concessions 6.o 5.3 8.1 7.7 -3. 10.0 10.6 Petnsions 5.2 7.4 'K.7 21,7 21.6 21.6 25.0 E ui1Oment rents (net) 13.0 6.1 8.9 5.1 7.5 (.1 .6 TP'TAL 231.1 239.2 277.2- 300°.5 3?9,93 351.3 Let cnerating surplus or (deficit) (22.6) (3.3) (32.7) (27.7) (14.33) (42.5) (6:L.3) Lon-operating exp-enses 3nid recPiptS Lmi-;a1,:.e Towns1hipp etF 2.0 2.1 3.2 3.0 3.8 2.0 2.7 Lxpenses of previous ;years 7.9 6 .42 10.0 .8 .2 SundriLes, net debit or (credit) (i) (1.6) (_-5) (1.4) (2.2) (L.3)12.1) TOThL 9.3 *9 2.3 1.3 L1.6 .7 1. 6 Fixed chara.es 26.7 35.5 99.3 40,0 37.5 33.2 31.7 Nebt desfici t 53.6' 39.7 74.3 69-5 34.8 76.4 T'able 24. OPERATING REMSJLTS

F. C,, SOI;ORA - BAJA CALIFORNIA (r71 lionls ofS pesDos

1955 1956 1957 1958 1959 ) 960 1961

Ope rat i1 8enue

Freipht 18.() 1,7.6 13.8 14.7 13.6 21.4 IJ. 8 Passenger 13.66 16.2 16. 7 1I.7 15.2 11.9 14.7 Mail - - I .0 2 Ep,, re s 1.( 1.]0 .9 .8 .'7 .8 , Haulage - - - - 53.0 .1 .1 I emurrage - 3 2 4. Sundries .3 .8 .9 .7 .7 .9 .5 TOTAL 32.9 3§7 32.'3 ".2 30.4 35.5 35.1

CPeratingZ,Erenses

Wl^,, &-3StrUCtUres 7. 3 8.1 8.4 8.8 3.8 10.9 10.1 L ,UiT,-.nt, 4.65 5.*6 5-9 7-3 6.9 9.3 1-.3 TLff'ic .:L .1 .2 .3 .3 .3 .4 fr,nsport 8. 9.4 10.3 9.1 9'.1 10 6 10.3 xpreSS ) ( * Ge,r' ral Expenses) 1.9 2.3 2.4 .8 ,.9 3.3 ( 2.8

Pensions ) -- -. 1 TOTAL 22.4 215.5 27.2 2,.3 ?'J.; 374 35.1

Net Oper-ting Profit or (Loss) .6 10).0 5 1 3.2 2.5 1.1 ( .13) E,uipment rents, net - - - (3.1) (2 . (2.7) (2.1 ) Miscellaneous chMrges or revenue net _ __ __ ( .03) (o3)

Net profit or (deficilt) 10.6 10(.0 5.L .7 .2 (1.6) (6.1) Table 23i. OPERATING F&SULILTS

F. C. DEL SURESTE (millions o' pesos) 9pprox. 1955 1956 1957 19538 1959 196)0 1961 19629

Qoeara ting Revenue

Freit7ht 11.3 11.9 14.3 13.5 14.5 17.8 1.6.2 17,.5 Passenger 5.6 6.o 5.9 6.2 6.3 6.,i 5.7 6.0 4;SAi E:tpress 1. & 1.9 1.9 2.0 2.4 2.c 2.1 2 Haulage - _ - .1 .1 .1 .1 Denur rage, .4 .5 8 1.1 1.7 .8 *5 5 Sur,ldries - - 1.0 1.4 1.4 .8 .7 7 TOTAL 19.1 20.3 ,Ž3.9 ;4.2 27.32 25.3 27.0 2terating Expenses

Way & Structure 9.8 11.9 13.5 17.7 19.9 16.3 14. 8) Equipmlent 4.3 7.3 7- 7.9 7.0 ' 6.)- T:r-fic .2 .5 .2 .2 .2 .3 .3) Tlr:^nstrort ~~~~5.0 8 ,U 7.1 8.3 12.0 12.1 12 '. 7) 45.,O E;xnress ) ------)- Cwteral F-Penr-na) 1.6 7.1 4.3 2.1 5.0 4.9 4.1) Pensions ) TOTAL 2.0e9 35.27 32.5 .2 47.1 l.? 39.5 43.0 flet Operating Profit or (TL0s3) ( .L.7) (15.0) ( 8.7) (12.0) (17-6) (i4.0) (14.4) (18.0) L, lipim flt rents, net - - 2.O ( 1.8) ( 1.7) ( 1.3) ( .6) ( .6) tLi sce.Llaneous char-res or r(c,wenues, net _ __ _

Net profit or (defici.t) ( 1.7) (15.0) (10.9) (13-8) (19-3) (15.3) (15.0) (18.6) Table 26. OPERATING RESULTS

F.C. UNIDOS DE YUCATAN 7(iillicns of pesos) Provis.i clr. 1955 195791956 1958 1959 1960 1961. 1962

Oierating Revenue rre-- i}:~~, ht 3.4 3.9 4. 4.2 r5.1 5.7 6.o 7.0 P;issei.&r 1.7 1.5 1.7 2/) 2.2 2. 8 3.1 3.0 i ,lail Exp ress 9.9 1.0 .9 .8 .8 .8 .9) 1--laulage .1 2 . .1 .J .2 .2 .2) Demurrage .0 .0 .1 .1 .1 .1 .1) Sundri: s .2 . .3 .2 .2 .2 _ .2 TOTAL 6.3 7.3 7.i 8. 9. 8 10.5 11.8 QratinL _xkenses

1Jay & Structures 1.7 1.7 1.8 3.1 5.1 5.1 3.4) Eciuipment 2.2 2.2 2.1 2.5 4.0 3.9 4.1) T-r-af fic .1 .OI 1 .1 .1 .1 .1) :21.3 Transport 4.8 5.0 4.8 5.7 8. 7.9 .1} Lxpress ) Ceneral Expenses) 2.4 2.5 2.7 3.5 4.7 4,9 (1.9) Pensions )- (2-f) TOTAL 11.2, 11.4 1.5 14.,9 21. 21.9 23.3 24.3 het Operating Profit or Loss (.J ( 7' ) ('.2 ) (7..t' ) . :) (12/)"' ( (.12.5) Equipment rents, (net) ( . 1) ( . 1 ')3) (,s? ) .) ( 1.0)0( ( .6? .6 Miscell3neous ch.3rgrs or revc,pr (ret) ( ) ( :)) C . ) ( .Ji) _ 7 .1 '1

Net deficit (Li;' ) (1.6 ) ('.7 ) (b. ) (13.3) (13-9) (13 .3) (13 2) Table 27. OPERATINJ RES'ULTS

F. C. CHIHUAHUA AL PACIF1C0

A nnro-,. 1955 1'.-;5~K 19q7 1'?58 1959 960 1 61 1962

Opcroting Revenue

7reigr,t 21.8 26.2 29.4 29.5 29.0 28.1 41.3

Passenger 1 L .U j .1U C1.7 1.9 , . 2.2 NIail -02 T, _ _ _ _ n n n , , , , r , rAix-p es.1 ±. L L .1 .) -L).Lu. - Haulage e9 1.4 1.7 1-5 1.3 1.3) 15.2 Demuae 1. 1.1 1.3 1.2 1 L.4 Sundries .9 1.3 1.3 .7 .6 - _ TOTAL 27.5 33.0 37.1 36.0 35.3 35.0 52.5

Oret.ing Expensn:>

-:.-n ^ ucturc- 2s.5 lo., 1q.9 17.5 17.7 21.6) Equipment 1'- L2.4 12.6 14.0 13., 14.2) fralfic .1 .1 .1 .1 .1 .1) 62.0 T'ranso>ort .5 1 . 27 '1 ].1.3 - Expres ) - - - - - .6) General nses) 3.0 4.6 5.3 6.1 !.3 3.2) Pensions ) - - - 3.3)

TD2AL 45.0 4L.4 45.6 49.8 49.3 53.3 62.0

Net 0per_ttr: Loss 17.51 11.4 8.6 13.8 14.2 18.3 9.5 Equipment Rents ( *-) 1.2 5.1 6.9 4.6 3.2 3.3 Miscellaneous Ct!ir:-es - .1 .1 1.1 1.3 1.6 1.6 Net Deficit 16.6 ]2-7 13.8 21.8 20.1 23.1 14.4 - 133 -

Table 28. NORMALIZED AND UGWKOM-IZME OFPXAT15GUREMULTS, 196_-65 F.C. NACIONALES DE NiICO (millions of pesos)

1961 1962 .1963 1964 1965 Actual Approximate _ Estimate Estimate Entimate

1.. Operating Revenue 1. Operating iievenue ~~~~~~~~~~~NormalisedNormalized Noxmalized

a. Pa rs (1961) 120.0 120.0 120.0 120.0 :20.0 Add (i) Estimated increase in traffic - 0.8 1.5 4.0 6.3 (ii) !! !! fares 32.0 44.7 Total Passenger Revenue 120,0 120,8 12,5 l6.0:7

bFreig. (1961) 1138.3811.3 3 118.3 LI38.3 21.38.3 hdd: (i) Estimated increase in traffic - (22.5) / 125.5 166.3 '06.3 (ii) " " " rates . - 294.2 J02,9 Toai_ht P,evenus-aL83 l 1263,S 1598.8JtJ7.5

C. Sundries 99.5 99.8 110.0 115.2 .11.5

d. Carriage of Mails 1.2 1.2 30.0 30.0 30.0 e. Taxes on Gross Receipts -- -- 170.0 21L.0 ; 22.0 Total Opevating Revenues 1359.0 1337.6 L 695.3 -* .0 ZLF2-. t. Aad: Normalizatiop: allowances for services provided belo: cost and social benefits provided in excess of legal rinimum n/a n/a _ 471. Total Normalized Revenue 1359.0 1337.6 21c.6 2 33.3 2!01._

2. Operating Expenditure

a. 1961 excluding Depreciation and Renewals 154L.4 1541.4 154EL.4 1541.4 1541.4 Add: (i) Estimated increase in wage and salaries - 38.1 153.1 153.1 238.1 (ii) " " material, etc. costs - 38.0 63.0 88.0 L13.0 (iii) costs for additional traffic - - 41.2 52.4 63,3 1541.4 1617.5 1798.7 1834.9 1955.8 Less: Estimatcd savings from further dieselisation (40.0) _ 60.0L

b. Estimated Operating Expenditure excluding 1541.4 1617.5 1798.7 1794.9 1395.8 Depreciation and henewals c. Depreciation and Henewals 82.5 82.5 300. 0 325.0 _ ,350.0 Total Operating Expenditure 1623.9 1700.0 2098.7 2119.9 Z'45,8

d. Operating Surplus or (Deficit) (264.9) (362.4) 67.9 413.4 :355.5

e. Interest Charzes Al (112.1) (137.6) (2U0.0) (310.0> (360.0)

Net Deficit (377,0)00 SO,O) (i2 j2 T T53Ij-4 _ | 4.5

"Unnormalized" Deficit (377.0) (500.0) (733.4) (429.9)A (i45.8 A

"Unnormalized" Deficit without rate and fare increases proposed. (377.0) (500.0) (733.4) (756.1) (195.4) j/ Estimated from provisional and partial figures made available.

2J Deviation from trend forecast.

A Actual 1961; Piovisional 1962; 1963 as explained in text; 1964 and 1965 equal 1963 plus an estimate for additional borrowing. plus taxes on gross receipts / Equals net deficit plus normalization allowanceAless Pesos 100 million representing the difference be{ween interest :harges actually being paid and those recalculated in the text as appropriate plus interest charges on estimated further bornowing. - 131 -

Table 29. NORMALIZED AND UN)ORMALIZFD OPERATING R-iL5JlTS, 1961-6.. ALL GOVERNMENT RAILWAYS (millions of pesos)

1961 1962 1/ 1963 1964 1965 ActuAl Appoximate Estimate Estij-te 7sti_mat_ 1. Operating hevenue a. re ngcr s (196:1) 182.2 182.2 182.2 182.2 132,2 matisated increase in traffic - 4.5 8.6 14.3 19.0 (ii) , 'ares - 1-.0 Total Passengver lRevenuLe _182.2 186.7 190.8 228.5 b. ei-t 11 14.43 .7 144.3.7 1443.7 1443.7 1443.7 Add:(i) Estixnated itncrease in traffic - (7.5)2/ 151.1 210.7 270.8 7ii) "1 It "1 rates - _ 2-4. - 302.9 Total F. eight Peveriue 443 2 6.7 1594.8 1948.6 2027.4 c. Sundries 127.8 129.5 140.7 146.9 L,3.7 d. Carriae of Mails 1.4 1.4 37.2 37.2 37.2 e. Taxes on Gross Receipts retained as -- _ revenue__ 170. - 222.0 ______Total OperLatin Revenues 1755.1 1753.8 2133.5 2575.2 2666A. f. Add: Normalization allowances foi services provided below cost and sociEIl enel'its in excess of' leral minimum. n/a ru's 561.7 509.7 509.7 Total Nonr.malized Revenue 1 1753.8 3084.93l7 2. Operating Expenditurez a. 1061 excluding Omeciation an1d l.enewals 1952,9 1952.1 2952.1 1952.1 Ajd:' j) Estimated ino:ease in wages and salaries - 59.1 188.1 198.1 294.1 (ii) Estimated incrcase in mat.:rial. ct- mosts - b 9.8 81.8 111.8 142.3 (iii) Estimate,j cos:.s for additioral traffic _ 3.0 46.2 r1,6 1952.1 20o4.0 226)8.2 2323.6 24:5.6 Lf.ss: (il Estvie, savin,,s frou, flurther dieolisatlo - - (40.0) (nO0 b. onnl:n (.'ser:tinp Expenditure euzlu.iiny Pepreciation and ?;newals 1952.1 2064.0 2268.2 2283.'- 2475.o c. eciatco§. :epmu enewals 164.9 164.9 412.0 jj5.OL/550

l'otal C rurating lExoenditure 2117.0 2209 2680.2_ 2728.6 28-o0.6

8. PpezutLrSu: olu~ p Deficit) (361.9) (475.1) 15.0 356.3 295.3 e. Tt7 Cj ( (1.45.3) (168.6) (370.0) (430.0) (490.0) 13et Deficit (077.2) (6473 3f=) 73. _ . l9i71

"Unnoimialized" Def'icit (507.2) (643.7) (906.7) (617.4*/ (746.4)6/ "Unnormalized" Deficit without rate anid fare increased proposed. (507.2) (643.7) (906.7) (943.6) (1074.0)

I/ Estimated from provisioial and partial figures made available.

j Deviation from trend forecast.

i/ Actual 1961; movisional 1962; 1963 as explai-ied in text; 1964 and 1965 equal 1963 plus an estimate Cor additional borrowing. PLus taxes on Gross Receipts (N.de M.) 4 Equals net deficit plus normalization allowance/less Pesos 180 million representing the difference between interest charges actually being paid and those recalculated as in text as appropriate plus interest charges on estimated further borrowings. APPENDIX TABL3 30 I COST OF TPANSPOU>TING GOODS I/

ON THiE,F.C. NACICNALES DE MECICO, 1961

I. _Mt1v VsriabLe Freight Ol>rat C la .centavosper metric ton/k-i.Lneter)

Less-than--carload traffic less-thafnrcarload traffic Full car-load traffILc. received in and delivered from received and deilivered by road railway freight warehouses. fras goods owner' priasels.

Car loadled to: Car loadecd to: Car loaded to: LengOWof Ihaule i"l tUAr 5,0 ton I iLO Ion 6.79 t s30 to>ns 20 t on 10 ttorULA2p_ 20 tora 10 tc U0 39ton 2,0 t;ons 10 t91U L--Avera;ip)

10O 33.8 41.6 45.0 54.6 80.6 158. 6 744.6 770.6 848.6 1,670.4 1,696.4 1,774.4 20 19.3 23.4 25.2 30.4 44.2 85. i 375.4 389.2 430.8 838.3 8i2.1 893.7 30 14.4 17.4 18. 6 22.3) 32.1 61.5i 252.3 262,1 291.5 5160.9 5i.-7 600.1 4J0 12.0 14.3 15. 3 18.2 26.0 49.l4 190.7 198.5 221.9 422.1 429.9 453.3

5;0 10.5 12.5 13.3 15.8 22.4 42.]L 153.8 180,,1 191.8 31.0 345.6 365.3 100 7.6 8.9 9.i4 11.0 15.1 27.6 80.0 84,1 96.6 172.6 176.7 18:9.2 1SO 6.7 7.7 8.0 9.4 12.6 22.6i 55.4 58,.6 68.6 117.1I 120.3 130.3 200 6.2 7.0 7.l4 8. 5 11.4 20.3 i43.0 45,.9 54.8 839.3 592.2 1C1.1 250 5.9 6.8 7.0 8.] 10.7 18.8 35.7 38.3 4,6.4 72.7 75.3 83.4 3300 5.7 6.4 6.7 7.7 10.2 17. 9 30.7 33.,2 40.9 61.6 64.2 71.8 350 5.5 6.3 6. 5i 7.5 9.9 17.2 27.2 29.6 36.9 i53.6 5610 63.3 40D 5.h 6.1 6.4 7.3 9.6 16.6 24.6 26.9 33.9 47.7 50.0 57.0

450 (avorage) 5.4 6.0 k1 7.2 9.4 16.2 22.5 24., 7 3'.5 43.1 45.3 52.t 500 5.3 6.0 6.2 7.:L 9.3 15.9 20.9 23.,1 29.7 39.4 41.6 LS.2 600 5.2 5.9 6.IL 6. 9 9.0 15.4 18.4 20,.5 26,9 33.8 35.9 42.3 730 5.1 5.8 6.0 6. E 8.8 15.1 16.7 18.7 25.0 29.9 31L.9 38.2

80D 5.1 5.7 5. 9 6.7 8.7 14.8 15.3 17.3 23.4 26.9 !8.9 35.0 900 5.0 5.6 5.El 6.15 8.6 14.6 14.3 16.3 22.3 24.5 26.5 32.5 1,ODO 5.0 5.6 5.8E 6.6 8.5 14.5 13.5 15,4 21.4 22.8 24.7 30.7 1,500 4.9 5.5 5.7 6.4 8.3 14.( 11.0 12.9 18.6 17.2 19.1 24.8

Ovf/ varying loadability orer varying Lengths of haul. APPENDIX TABLE 30: II II Total. rei; ht op era$inz cost,. Mcenlcavos per metric ton/kiLometer)

L4ss-than-carLoad traffic Less-than-carload tLraffic Full car-load traffic. received in a,d deliverecd from received and delivered by roacd railway freight warehouses. frm goods obmer' s premises. Car linded to: Car loaded to: Car loaded to:

leigth of hauls inL kilatetr _ 'i tons AID tone 36.7U2= 30 -C,tons 20 ton8 10 to 30 tn 20 tons 10Dton D ton5 2 tQns 1 on T Av-erage )

10 35.8 43.9 47.4 57.2 84.1 164.2 747.2 774.1 854.2 1,673.0 1,699.9 1,780.0 20 21.3 25.7 27.6 33.0 4,'.7 91.4 378.0 392.7 436.4 840.9 855.6 899.3 30 16.,4 19.6 21.0 24.9 35.6 67.1 254.9 265.6 297.1 563.5 574.2 605.7 40 14.D 16.6 17.7 2).8 29 .5 55.0 193.3 202.0 227.5 424.7 433.4 458.9 50 12.5 14.7 15.7 18.4 25i.9 47.7 156.4 183.6 197.4 341.6 349.1 370.9 100 9.6 11.1 11.8 13.6 1I8.6 33.2 82.6 87.6 102.2 175.2 180.2 194.8 150 8.7 9.9 10.4 12.0 16.1 211.2 58.0 62.1 74.2 119.7 123.8 135.9 200 8.2 9.3 ?9.8 11.1 14.9 215.9 45.6 49.4 60.4 91.9 95.7 106.7

250 7.9 9.0 9.4 10.7 11,.2 Z.4 38.3 41.8 52.0 75.3 78.8 89.0 30O 7.7 8.7 9.1 10.3 13.7 23.5 33.3 :36.7 46.5 64.2 67.7 77.4 350 7.6 8.5 8.9 10.1 13.4 Z2.8 29.8 :33.1 42.5 56.2 59.5 68.9 4Ot 7.5 8.,4 8.8 9.9 1l.1 22.2 27.2 30.4 39.5 50.3 53.5 62.6

450 (avera4e) 7.4 8.3 L2 9.8 12.9 21.8 25.1 28.2 37.1 45.7 48.8 57.7 500 7.3 8.2 8.6 9.7 12.8 ZL-5 23.5 ;26.6 35.3 42.0 45.1 53.8 600 7.2 8.1 8g.5 9.5 12.5 ZL.0 21.0 24.0 32.5 36.4 39.4 47.9 700 7.1 8.,0 8.4 9.4 12.3 20.7 19.3 22.2 30.6 32.5 35.4 43.8

8a0 7.1 7,9 8.3 9.3 12.2 20.4 17.9 20.8 29.0 29.5 32.4 40.6 900 7.0 7.,9 8.2 9.2 12.1 20.2 16.9 IL9.8 27.9 27.1 30.0 38.1 1,000 7.0 7.8 8.2 9.2 12.0 2).1 16.1 18.9 27.0 25.4 28.2 36.3 1,500 6.9 7.7 8.1 9.0 11.8 1'9.6 13.6 16.4 24.2 19.8 22.6 30.4 III. Total cost, .nc1lUdin, fL.xed caarses and loss on Passmizer servicLe. APPEBlIX TABLE 30: III kcent,avos per metric ton7kilometer)

Less-than-carload traffic: Less-tilan-carload traffic Full car-load traffic. received in and delivered from receimvd and delivered by road railway freight warehouses. f'rom goods owner's premises.

Car loaded to: Car loaded to: Car laEded to: Leroth cf hau:Ls in kilia,ter2 ons 40 ions to 1 tons 20 tons 10 t 3 20 tons 10 tont- ( Average)J1 os C os 1 tn os 0tr 0 o

10 33.3 47.8 51.4 61.7 89?.8 174.0 752.6 780.9 865.8 1,678.i4 1,706.7' 1,791.6 20 24.8 29,,5 31.6 37-5 53.4 lC1.2 :383.4 399.5 448.0 846.3 862.4 910.9 30 19.9 23,,5 25.0 29.4 41.3 76.9 260,3 272.4 3Q8.7 568.9 581.C) 617.3 40 17.5 20,4 21.7 25-3 35.2 64.8 :L98.7 2C08.8 239.1 430.1 440.2 470.6

50 16.0 18.6 19.7 22.9 31.6 57.5 1l61.8 190.4 20t9.0 347.0 355.8 382.5 100 13.1 14.0 15.8 18.1 Z.3 43.0 88.0 94.4 1L3.8 180.tj 187.0 206.4 150 12.1 13 ,8 14.4 16.5 ZL.8 38.0 63.4 68.9 85.8 125. 1 130.t6 147.5 200 11.7 13,,1 13.8 15,6 20).6 35.7 51.0 56.2 72.0 97.'3 102.5; 118.3

250 11.4 12.8 13.4 15.2 20.0 34.2 43.7 48.6 63.6 80.'7 85.c6 100.6 300 11.2 12, 5 13.1 14.8 19.4 33.3 38.7 43.5 58.1 69. 6 74. 5 89.0 350 11.0 12.4 12.9 24.6 119.1 32.6 '5.2 39T9 54.1 61. 6 66.'j 80.3 400 1(.9 12.2 12.8 14.4 1B,8 32.0 32.6 37,2 51.1 55,7 60. 3 74.2

450 (averSge) 10.9 12.1 12:7 14.3 18,6 31,6 30t5 35.0 ,48.7 51.1 55.6 69.3 500 10.8 12.0 12.6 14.3 18.5 '1,3 28.9 33.4 146=9 47.4 51.9 65,41 600 10.7 11.9 12.5 14.0 l8.2 30.8 ?6.4 30.8 44.1 41.8 46.2 59.5 700 10.6 11.8 12.4 133.9 18.0 30.5 24s.7 29.0 4,2.2 37.9 42.2 55.4,

800 10.6 11.8 12.3 13.8 1'7.9 ,10.2 23,3 27,6 40.6 34.9 42.2? 52.4, 900 10.5 11.7 12.2 13.7 17.8 30.0 22.3 26.6 39.5 32.5 36.7 49.7 L,000 10.5 11.7 12.2 13,7 17.7 29.9 21.5 25.7 38.6 30.l3 34.9 47.9 1,500 10.4 11.6 12.1 13.5 17.5 29.4 19.0 23.2 35.8 25.2 29.4 42.0 ANNEX IV - TRMASPORTATION

PART II

Roads and Road Transport Ports and M-erchant Shipping Airports and Civil Aviation TR'AJSPORTATIDN: PART II

TY-IE hOA4DS PRJGR'AM

The Road System

1. 4Mexicots road systern has developed rapidly in the past eighlt years, as can be seen from the following table:

LENGTH OF ROADS BY CLASSIFICATION, 1955-62 (kilometers)

State & Year Federal LTorC21" Tol I Ttal

1 13,056 12,32) 236 25,618 1950 13,200 13,549 268 27,017 1957 15,407 13, 758 268 29,O1.3 1958 15,306-j 15,214 268 30,788 1OQ5 16 A7R 16 Aol 33,5 1960 18,309 20,166 385 38,860 1961 20,h81 23,397 4234_,31L 1962 20,972 25,302 424 46,698

1962 (45'ld) (54%) (1%) (100/,/)

2. In addition to an increase in the length of highways' there has been a sul stanrtial imrproverrnent in quality so nhat by 1962 paved roacis accounted for 66 percent of the total kilomieters, ,rav..el surfaced roads 23 ipercen,t and earth reads 11 percent. As well as thnese maintained roads there is an uncounted nu-aber of "brechas" or trails which are motorable at slow speeds, high operating costs and for lim:.teu parts of the year.

3. llriuch of the rece;jt road cornstruction has been desi.ned to overcome Mexico's basic topographical limitations which greatly influenced the pat.- tern of early highway developmaent. The seven main .,iountain ranges, the "Sierras", which form deep valleys and hi,h plateaus, induced development primarily in a N-S, NW-SE direction. In recent years an increasing number

D-Dcrease due to the transfer of some federal roads to state roads. - 2 - of transverse or lateral highways have been developed. The Mexican authorities consider however that ultimately two other transverse routes are required: (a) along the full length of the U.S. border; (b) from Ciudad Guerrero to Ciudad Obregon in the north; and in the south a roa,1 from Tehuacan to Tuxtla Gutierrez. The ultimate completion of these roads, together with the filling of three gaDs in the Pacific coast highway, would complete the basic framework of the e%xican highway system. Future development, part of which is included in a program at present being financial:Ly assisted by the IBRD and part included in the program outlined below, iS desiened to fill in this frame be feeder road construction into isolatedl but potentially rich areas, and to reconstruct high-traffic-density existing, rnads.------

H4ighwav Orr-gia-nnztiAnn

The edral t.ructu re nfgovranin+. in-vols radivi qin nf reqnpoll- sibility for the highwTay system among various authorities which in turn

1. The -ecretaria de Obras-v,bi4cas (SO?P) T.rbichJint r alia, i9 responsible for the planning and construction of Federal Highways and Toll 4 4 I? nzrAe . +hm, rn"n -an onnR 1Q rQ_7WAC-1 -<,a-%e. +M,o A-A in, -'A; 4nli WQn+ e,lnn,. vision of construction of State and Local roads.

Federal Highways, which are financed 100 percent from Federal f ULrUd, aL.reZUILJ= roadsCLU0 egardedU aQsI o internatioULId.L V.J LIonaL.LUL sIgLrLi.L.L- cance or inter-state links. Fig. 1 shows the organizational chart of the OPV whLchls es.ua.shed un Uclax'r iui-e of aulUority and bia±eiu by ab lt- efficient staff and Department neads.

2. Juntas Locales de Caminos wiich are special Boards composed of the Governor of the State or his representative, as Chairman, and representatives of the State Chamber of Commerce, private truck operators and the SOP. These Juntas prepare State Highway Programs which are presented annually to the SOP's Department of Roads in Cooperation with the States; for technical scrutiny and administrative action because 50 percent of their construction costs is borne by the Federal Government. Maintenance of the State Highway is performed by special maintenance organizations within the "Juntas"; they have qualified technical and administrative staffs. Despite a shortage of modern maintenance equipment, the roads are generally well maintained. The provision of additional equipment could help reduce maintenance costs.

3. The Comision Nacional de Caminos Vecinales, which, under supervision of the SOP is responsible for promoting the construction and maintenance of local/feeder roads. The "Comision" is composed of the Secretary of the SOP, as President, representatives of the Secretaria de Hacienda, and the Secretaria de Patromonia Nacional, two representatives MIco

ORGANIZATION C8ART OF THE SECIE RIAT CI? PUBLIC WOFIS

rSZr!TEY

~~-PUBLIC LI L~~~~~~~~~I WOMS _- 31U 7 PAEITZ T15hIIIICAi ] DPARVIEiT _CIEICAL 1 F PLAININOAND I~AN UxCFMATICN (V CTECHL | AT IAWAISCESCiARIAR

EW(ISOlX A31 A 1DDlDril \AD3z0R

___~~~_ [_¶~~~CINICAL77~~~~~~c~~7 srni~~~~1 /' - 7 ~~~PICI ARATJ-]NCA I'ISIDC AUDISCiBS __AISOM/ \ I

DEPABDArn DEPAR7=ET DEPARTDWF -r DTPAIRED DIPAMTUM [ DKAIBmrT ROJEcW iFOFofOFrI AMID co _IucnoN c._s35UCTI,Y LABEWA1! A~~ISThATIVB L NAINTKANCEASCD HIGWYS IN' J APPAIC B OF RAILROADSCDOF fMIEAL LBOF IIMALS COPRTC Lr______OPAPRflAU2 PARIT_ IT 0 [Li DRPARN1~T _ DEPARTI T IXPAPtIICA K ,~I F -EIJAI,

7 7 1 DIPm~~~~~~~07ai2

I QUIP~~? AccrACCTJUTIBO PUUNIISE1iC1;XPMRASES L WAJ Ia ______l

j~~~~~~~~~~AUXILIARY L _ __ . .IE8AS CiA S- iiE TCX ______- I- - su,ricz MECHAJIZED - SERVICE

1963Jue IISD-10illB -3- of th,e Asociaciotn :exicana Je dai.n,os,. and one . representative electledI bY 'Lie for g-1ng

The nprogrnm for +thenroadsz, c Jhii finarn:cd from 1/3 Federal, 1/3 State and 1/3 locally-generated funds, is reviewed quarterly and must be approv-d by the SOP On ,..pletion o a 'tl" road it i+ t f to the State government as a State road. Therefore, the length of "loca:L" roadus at any z.Lo.,en-t- of' 4i.4 relate only -o,- ne osrcin

l>. '..a,l1nos.-r Puer,tes Federales le I (ll Road Aithority). While the SJP plans and conlstructs toll roads and toll bridges, their II~±LU~t:JULJUtJ ±j UZ11±I.L:u uUUU J)Y UiLL.J ZA:I"±dL UUULIKJIIV(U,_ jJULJL_Lt operation~ ~U~JJ and'~JU mnaintenance_ 4 carie ou-4s t-sI-. -e,-auoo u public agency, which is also responisible for a nuaber of main toll ferries.

5. The Secretaria de Comunicaciones y Transportes (SCT) is the responsible authority for t-ie control of traific and road transport on the Federal network. Within the States, traffic police functions are carried out oy separate state organizations. The SoC is also responsible for the issue of route permits and for the determination of rates and fares for truck and bus operators only on the Federal roads. The i"Secretaria cle la Presidencia" is responsible for final decisions as to the investrr±enJts of Public fiands and ?ublic forks pro!rams. In aiming at its decisions it at- tempts to coordin.ate the invest.nent prograrms of all the Government Depart.- ments and the semi-autonomous agencies, and as such it has authority to make chaniges in the sub.iitted programs.

Uh.lile this spread of i-es-iUlity could auparentl' lead to confusion or duplication of functions, the svstem: works smoothly, however, in practice, and no major frictions a.pDear to be created. This is partly because of the over-riding authority of the SOP for design standards and specifications and partly by the transfer of maaintenance and reconstruction burdens to the next higher authorit'- a;s traffic volumes justify. Nieverthle- less, the mission gained the impression that there is a confl'ict of o'in- ions between SOP and SCT, not because of their different responsibilities for maintenance and operational use of the highways, but because of their interpretations as to what road standards are necessary, and as to the order of priorities as to where new roadl developments should take place.

This, however, is only a reflcction cf the larger problem wihich arises from the absence cf any cicar transport policy. garlier in this report the mission recommends the for,mulation of a consistent policy for the development and coordination of transport and for the creation of some centralized transport planning authority. High.way Expenditures, 1955-62

5. The rapid expansion and iriprove-ient of HIexico's highway system has been ach.ieved as a result of larg,e canitnl and recurrent expenditure as follows:

HIGHWF:AY 00'STRUCTI)N I-.D 1LAIMTEiAN!CE EXPENDITURES>/

Year Construction ?vai .tena PD+ a

'L L .4 I vvJ~ 1956 606 17 784

1958 842 191 1,(33 19v^ 849 36ULv ±1 ,214 1260 6&2 288 960 1961n -Z non 72)4 32jnm.7 1,0_2I orl- 1962 714 356 1,070

5,823 2,008 7,831

1/ Incluling indirect costs.

6. These expenditures ihave been civiied by types of road authorit- in the following manner:

HiGE-,iWY LXPEBiI'iJFES 91 TPS?. f AUTHOiRITY (lii±1ions o~f pes.os)

Year Fecteral PolL aite L-)c al 'otal

1955 53b - 6lt')4 736 19 )39 - 96 199 7 8 1957 (40 - 11) 177 93c 1958 661 05 132 175 1,033 1959 791. 67 153 203 1,214 1960 601 100 lcl 7d 960 1961 617 176 276 83 1,052 1962 646 19B 189 _ 77 1,070

4,58L 566 1,103 1,176 7,831

7. Fro: tr,e above tables it can. be seen thA.'t recentl- annaal avera2e total highway expenditures have been so-ie ;Ps. 1 billicn. Of tois, 30 percent has been for maintenance arnt 70 percent for construction. Total exnenditures (1955-62) have been divided in the followingf proportions - Federal roacds, 64 percent, Toll roads, 7 percent, State roads,14 percent and Local roads, 15 percent.

Highwj.,i- Maintenance

8. Highway l]iaintenance is carried out satisfactorily by the separate maintenance organizations of the different responsible authorities: Fe!d- eral, Toll and State. As to local roads, upon their comoletion mainterance is assumed by the State aut'horities. In a.dition to routine maintenance. paved roads are seal-coated every three to five y-ears with a new carpet being laid evE:r\ ten to twelve vears.

Expendituires on ntnnce sinrei.ai 195, have~ h-eIn zlividecd as follows:

HIInrllAY AD\ilT-I CE L,TZ1ND:TTlP 3:

-/ Year Federal Tl1l &tate Total

1956 160 13 178 95r7 I5 I 2-f 17 1958 164 2 25 191 io Co .0A Ae 1/'I 1960 250 2 36 23i3

LL)~~~~~- 1962 263 13 80 356

ThisMU- 'ag ioeewa aue partly b-y the b'-oc': ourchas-

±lil± ±LL8k'_Lres was cused~ - d U.Y ulv_ u-IUU~d of Ps. 73 million worth of rnaintenance ecquiment, much of uhich will soon fall due for renewal. T-1he IBSD has fina-nlced, as art of Loan 35H4- ME, the reMplacEemnt of most of the worn-out equipment. highway Design and Traffic Control

9. To meet the rrowin4 and different tra-"I'ic volumes the SOP has adopted a set of ,g,eoietric dcesign standards for the naticn's roads which the mission regards as fully accnptable (Am,endix B). The legislation for the control of vehicle vjei,-hts and si7es is also satisfactory (An. pendix C) . - A -

T.I_ ez-o-em.e...t -frficcontro on. the Fee mlrads is cre out by the SCT Highway Police Department. This organization is well equip- pedmA_Ath - .a V.modern - 1n ±ULLALL byV-i.nU CLa-stff-u. CVa.-4 WVLI1J..Ii,hic, a.J.ULaltho-u IL61 44t.3 is4LO allgetL__L r U %. act arbitrarily, is well trained and efficient.

Road Development Policy

11. Although there is no officially declared highway policy in Mexico, .I practice, the SOP has t.o adopt certain prioriIties in the allocation of its budget. The mission was informed that given the Federal funds available annually they are divided as follows:

1. Administrative Expenses 2. MIaintenance of Federal roads 3. Construction and 14aintenance of State roads 4. Construction of Vecinal roads 5. Construction of Federal roads

12. The mission agrees with this as a logical division of whatever funds are available for highways, the total of which is limited by other competing Federal needs and by the abilities of the State and Local Governments to raise the matching amounts required of them. Some criticism was expressed to the mission that there has been an undue concentration of expenditures on the construction of high-design standard Federal roads which primarily benefit large truck operators and the more affluent section of private car owners, to the neglect of poorer isolated agricultural sectors of the community.

13. The mission accepts, and recommends, that more should be done to spread a system of low-standard rural roads. Such roads by reducing transport costs for the existing traffic and facilitating the provision of administration and other public services, and also by widening the economic and social horizons of relatively isolated peoples, can act as a catalyst in the whole development process. We recommend, therefore, that steps be taken to increase the financial contribution of the Federal Government toward the construction of this type of road, either by reducing the present matching percentage shares of the State and Local Governments or through some other arrangement, so that in the future rural roads may be developed more rapidly than in the past. l1. V,1hile there may be a few cases of over-designing of roads, the mission thinks that, on balance, the Federal highway programs have been justified in view of the past and expected growth in traffic volumes.

15. In relation to the toll road construction policy the SOP attitude is that where the public highway has become saturated it is unjustifiable to incur heavy expenditures for the reconstruction and improvement of these roads in view of the general need for hiahwavs in noorer areas. Therefore, -7- self-financing limited access toll roads are constructed leaving the old nearby road as a free highway.

The Highway Investment Program, 1963-65

16. A sumwmary of the proposed capital investment in roads in 1963 and probable investment in 1964-66 is as follows:

Proposed Investment (millions of pesos)

Items 1963 1964 1965 1966 Total % U&ctual)

i) Construction of Federal Roads 341 475 390 440 1,646 27

ii) Reconstruction of Federal Roads 80 137 226 37 )-,o 8 iii) Construction of Toll Roads and Bridges 352 320 290 258 1,220 20 of which new Toll Road Program ( _ ) (20) (290) (258) (568) (9) iv) Federal Construction

LJuaw...J S'J- U.J L4O.- (b) States End Local

C-ou "I/ 80J I 11 Ij 3 127 4Lo 7 (c) State (?Inanced by FedAera" subsidies) *.>*/ 85 72 80 80 317 5 ,V.N '11a n C- Cat+-4 C ...... I.r , v / VI~.L&o| ;- .)wilcxi'371.I 4 v.4.41.,31,57 41. 4,P e 'L\4 :), ).4.

ITUCa.l 1405j 1,59.~77 - ,1,63,; 1,507V 6J,14" 100

*/ Includes 50 percent State participation

**t/ This construction is financed in equal parts by the Federal Govern- rm,en't 'he States and private local groups. The iigure given here excludes the private share which is not counted as public investment.

***-/ This construction is part of the program of Federal cooperation with States - but is fully financed by Federal subsidies. 17. The breakdown of items (i) and (iv)(c) - Investments for Construc- tion of Federal Roads and State construction, fully financed by Federal subsidies is as follows (in millions of pesos):

Projected

Items 1963 196) 1965 1966 Total

(i) Program partially financed bv Bank Loan 268-i'IE 195 270 25 - 490

(ii) Program partially finncnnd hy RBank Lnan 354-INTSl 85 190 245 81 601

(iii) Program to be partially fin~anced by a proposed new Bank Loan - - 110 339 449

(iv) Progran to be 100% fin.an"ned -Prom F ed eral1 budget 146 87 90 100 423

426 547 470 520 1,963

18. A general description of the works included in the planned investment F is as 401Se

a. Constructuiun and Recor,s',rui-uori o_e-L,erL. .U=. L_ iLUaus. A*livuJ l thUeI main highway network has grown steadily, some important links are still missing acid new penetration roads are required to asslst inl the opening up and development of potentially rich agricultural areast In addition, since some sections of existing roads were built 20 years ago to standards which are now unsatisfactory because of the gteater volumes and increased size of vehicles., betterments, realigri-nments and wide-nings are necessary- Detailed analyses have been carried out for the economic justification of the roads submitted to the Bank as part of the Loans now being dis- bursed as well as the request for a Third Highway Loan. These analyses have shown that the roads are satisfactorily justified either in terms of benefits to road users or their exoected economic and social development impacts. The mission feels that similar benefits would derive from those parts of the program which would not be assisted with Bank finance.

b. Construction and Maintenance of Toll Roads and Bridges. Toll road investment in 1964 is mainly a continuation to completion of a program being assisted by the Bank which traffic and financial studies have shown to be justified. It is also proposed to start in 1964 - for completion in 1967 - a new toll - 9 - facilities program involving the construction of seven toll roads and five toll bridges with a total cost of Ps. 6hh million. The bulk of this investment would take place in 1965 and 1966. The proposed facilities are the following:

Prplim. Cost Estimate Facility Length No.of Lanes (mill. Ps.)

Orizaba-Cordoba Road 23 4 42 Tepamac-Pachuco Road 53 n02 Apasco-Irapuato Road 66 2 67 auadalaiara-Zonothineio 31 1 37 Icapuato-Silao Road 34 2 30 Neic~o-Th,wo'co Poaid 2] 14 8 Mexico-Queretaro Road 206 2 to 4 220

Total Roads 434 -5_

Panuco, Tampico Toll Bridge 32

Nautla, Tab. " " 6

La Piedad, Mich. " " 2

Total Bridges 61

Total All Facilities 644

Approximate foreign exchange con'ruen, kjr11. uSj 21

On the basis of a preliminary examination oIf technical and economic data recently submitted to the Bank, it appears that the construction of these facilities car. Ue JustlieU ULJ ther4 mer-osh. however, in -reweWIi of Li1e overall financial limitations discussed in Chapter 6 of the main report and the possibility that 1965 public investment in several important sectors may have to be reduced below the desirable optimum, the mission would suggest that the priority of the new toll facilities be considered within this wider framework.

c. Construction of State and Local Roads. These works are vital for the further development of the economy, not only to connect or improve roads from isolated places with the main network, but also to open up potentially productive new areas as well as assist the Government's agricultural and settlement policies. - 10 -

19. The mission considers that the total arnount of the proposed investment under this heading is a realistic minimum to meet the future traffic and development needs of the country. While the mission accepts that it is impossible for the Government to satisfy the almost insatiable demand for rural roads, it does recormend that the distribution of available funds should be based primarily on a realistic assessment of the total economic and social benefits anticipated. Since funds are short. Mexieco must necessarilv be long on axnertise The mission also considers that there may be cases where the design standards for some of these rnoans nzrml be reducedso aS to ennhis mnrer- 1il m1 tnrs for given amounts of rnoney.

20. In September, 1963 the Bank extended Loan 35h-fE for 340 million which finances the foreigr.n- cos- o-f' +the 106=6AA Rrl W;-harY.r program, viz:

FFDERAL HIGHWAY IROGRAM, 1963-65 (mll;.3Jons 0of Uesos)/

Item 00I< IA UO 17WU-I & 02 n4' Tal0 4 o0

a. Nvew Cor,structiontJ - 85-; 190 245) 81 6C^ 5C b. Reconstruction 17 125 214 36 393 33 c. £-LjUjA[1L1tUZlL-nUIaIe - 96 - - 9 d. Other Equipment _ 10 - 10 e. Plus 10% of a. and b. 1u 32_U 100O C.

Grand Total 112 L53 5°5 129 1,199 100 Totals of a, b, and e only 112 347 505 1,093

21. The maintenance equipment requested is solely for use on the Federal highways. The other equipment item consists of laboratory equipment and motor vehicles necessary to ensure that work done in the field is controlled in accordance with the highway design standards laid down.

22. The h-ighway works part of the programt is divided as follows:

Length Km. Total cost Ps.

a. The reconstruction of 11 roads 2,154 393 b. The completion of 20 roads under construction 2,021 378 c. The construction of 9 new roads 793 222 d. Plus 10% contingencies of above - 100

Totals 4,968 1,093 - 11 -

23. It has been calculated that the foreign exchange component involved in this total program is made up of 36% for the road works and 100% of the equipment costs as follows for the Federal Highway Program, 1963-65:

Foreign Local Exchange Currency Total - -US$ US$ - US ItP5m equiv. Ps. equiv. equiv.

1. Highways 394 (31.5) 699 (56.0) 1,093 (87.5)

2. Maintenance Eauipment 96 (7.7) - _ 96 (7.7)

3. Other Equipment 10 (0.8) - - 10 (0.8)

Totals 500 (h4.0) 699 (56-0) 1,199 (96.0)

24. In the mission's view the already agreed Bank assistance for the hig.hwm.Jayrects-ut n-dcrt tionroamandA for th urhseo equipment, amounting to US. 40 million, exhausts the possibilities of direct ex+ernal financial p i o +1- 3 F .0 program. However, there may be an opportunity to give external finan- cicall assistance t4o 4the modes bU valuable- progaLn,a of local roalds (caminos vecinales).

25. The total 1963-65 road program is expected to be financed from .loca-l resources w-Lithth assslnc VI ulthe Ithre t:X1-istLrlg cankr -loar,sC. The Mexican Government has also indicated interest in Bank financing for the new toll facilibies (Cf. para. 18 b.) - 12 -

ROAD TRJANSPORT

Aotor Vehicle Trends

26. The high levels of public exoenditures devoted to impqroving the hi7hway syr-tem is a reflection of the larme private expenditures on the cars, trucks and buses shown in the accompanying table.

M4OTOR VEiICTE GROWTH IN MEXICO

Years Cars Trucks 3;ises Total

1 9329 2L7

I 9A 2 I1.I3. I E E 1 78-n

1QC52 237.0 1,!1. 111I l):

1°56 ~ ~ 30.jj 21fi. 21.0 P5ti

1 0Y1Z'A) (est.) 526.0 344.0 36.o 906.0 r1~u~rcrL.age sL]cvesese:;

19L42-52 108% 137% 77% 131/, 19'52-62' 12 2%1 1 2 2, 804/e 1207o

Source: SOP

27. Regrettably the published ;oiotcr vehicle statistics give only total registrations by states. It is not possible for interested analysts, motor vehicLe distributors as well as others, such as Pemex and the Railways, to identify important cnanges which often underlie these total figures. For example, no information was available as to the age or weight or capacity distribution of the vehicles registered nor the extent to wchich dieselization of trucks and buses is taken place, etc. Such information is relevant to highway planning and design studies, to motor vehicle taxation policies, and to a full understanding of thle transport coordination problem. The mission's estimate of relevant factors is contained in the discussion of road-rail competition, earlier in the report, - 13 -

28. A national transport census is taken every decade but publicatioa of the results is so long delayed as to render them primarily of historical interest. For example, no preliminary res-alts of the 1960 census are yet available. Regular surveys of the traffic using the Federal highways are taken annually by the SOP. These surveys which are taken for 10 hours per day on five days per year are estisated to give a maximum error of 20 percent. More detailed studies are carried out by the SOP and the SCT for proposed toll roads or other special investigation, but no major origin and destination surveys of truck traffic are taken from which it would be Dossible to identify more closely the extent of road competition with the railway.

29. The mission recommends the creation within the Secretaria de Comunicaciones v Transportes of an office for the eolleetion. analysis and publication of statistical and economic informatioii concerning the deve-Lop- ment of road transport and the use of the highway svqt.ein_ This raw material is basic for the successful planning of' highway development in particular, and trnsnpnrt nolieyv in genernl

1Tinrui ng Policyt anA then 1Hi cn-unaws

_A( Tnw if.n onn -rli,- H;ol;n or' fo oln+4-rcs v-^nl n rtnA ennS ?-nil transport, the mission concluded there is a case for the expansion of both ,,.odes . The.ree rLem.inis fLor dismcuosion the m,cre detai_led quetosf trucking policy in relation to the highways. The consequences of the

lncrease4. nI UckZ%. regis. VratLio, atu tlh±e raLtde of over17 - -erce- -- e r during the past decade, are uorth exploring in the context of the missionts frame oil refCerence.

31. As has been pointed out earlier, trucking tends to concentrate on the carriage of high-value and revenue-earnings traffic such as manufactured goods, pharmaceutical products, perishable foodstuffs, etc., and general pick-up and delivery services rather than on bulk commodities. Except for special cases, trucking has captured most transport hauls of less than 450 km. and a significant amount of LCL traffic at hauls beyond this figure. All types of trucks have increased.

N-U-M3ER '-wTRUCKS REGISTERED, 1952-62

Year Official Common Carriers Private and Contract TotaL

L952 3.0 12.6 138.8 154.1

l956 4.8 L4.6 220.7 240.:L

1960 4.3 24.3 264.8 293.14

1962 (est.) n.a. n.a. n.a. 34 4.() 32. In broad terms, the ;nission believes that the growth of trucking and its traffic pattern have been influenced basically by the factors discussed earlier--imperfectiorns in the railways' rate strictures, the increasing demand for special zed services, a narrowing of the line-haul. cost gap, greater flexibility of operations, etc. On balance the mission feels that hig7hway construction ilas not unduly "diverted" traffic from the railways. Since comapetition is now available in te:.ns of both service and orice. shipners in Mexico are enabled to assess more critically the relative advantages from using either rail or road transport. For some comrnmii tji they are prepared to pay h igher pnri n fnr tflp- hisher servic:e and greater speeds of road transport.

33. On low tiaffic density routes, in particular, trucks and buses have thrived by offering an reater frerquenry of service Jith their low ner-- centage of fixed costs, sm'.aller carrying capacities andI general flexibility of oper4ation, they have proved t'nernselves--- - to be eorical trnsportiunt in areas where population is diffused and wh-ere the pattern of economic act vitriri A-nds ,: 7ter cr-nr or - ,- O+ 4 r,- PA)t.-1-+4 r -tr1 1 1-h;r- v... w j - UJ ; - v - v_-- a *-J *. v V w-_;- _ _ -- ,- ments at great frequency. DThe tende:.cy of industrial plants to locate close+ to t4 r marke+.satin,thus -,e ,n re.lativelSsa ort-hJaul transport needs, has also strongly favored tne grotfth of trucking. Except for goods

IjViLJtS inLJ s AU!I Lr VoLU.mes UkJ !iItU', dircUt idl Ua.cessdesirlU--oU avoid hi h pick-up ari- l.eliver- trans-sh-ipment costs-- it is becon:Ln£ i-

creat'i tJ.4-WIyi.4-tl 1or Sit1 VIA¶so,eAVilIH loaded a tric to send it a considerable distance. The lederal lawT which regards the railway property as speci u for whi sesparate perIl--L-s are rerquired oi truckers or prlvate truck o.,ners is said to be an aiditional incentive for shitPpers to keep their goods on a truck once it is loaded. As a result of these influences there has been both an increase and diversi- fication oi truick operations.

34. An outstandin,7 feature o- truckinjz in .iexico is the large proportion of privately owned truckj wilicil are not engaged in fo'-hize or il: contract carriage. The most frequent explanations offered to th- mission for this were in the usual terms of tl-he benefits resulting from lower costs to the ownier of ti-.e goous; better service to .eet custoners, needs; greater operational flexibility; more effective control over the transportation part of the total production ai.A uistribution process; fewer losses arid less da'haee; advertising on the trucks; freelom from laoor problems at railheads and team-tracks; etc. 'MIile thie mission did not investigate the influence of eacih of ttlese factors, they appear to be real benefits for which firms are prepared to incur the costs involved.

35. At the same ti.;;e, by the introductior: of specialized services, largS important and stable trucking firms have managed to tie substantial volumes of high value traffic to themselves. iiespite the hiaher rates charged on imports, ihicih may reflect a 1o,frernment effort to induce traffic onto the railways, the flow o. southbound tr-uck traffic from the U.S. - 15 -

to Mtexico City has grown, and truckers have soughit to select and develop special northbound return-load services. In some cases. they have al~o adopted a policy of traffic diversi.fication as an insurance a.ainst the risk of losinq all their traffic either to the railway or to other official "pirate" truckers offering lower rates. Some major shippers aIpear to havebhedcd a-ainst nossibhe rail strikes or hreakdowns by giving truckers at least a part of their regular shipments. And, as a result of the fixing of highway freight prices by the 'overnment. trrucking efficiency has increased: for long-distance trucking to be profitable, the 4 trcsmus iuse lvi Jry , mtVr'e efficir.t i" eq,ul vsv,it capable ofcvi .vr' -nc larger pay loads to offset increases in other costs. The mission gained the j m r, snn that+ th-e 'l.ex-1-n busiess world renize-- the permanen of long-haul highway transport now being operated by some of the efficient and stable transport fir.m.s whlchl have de eloped, and has con'Jfi dencee in its future prospects.

36. Trucking will gain even greater support. witil the furthler develop-

r,.ent I centUI dJ'r. truckLI U ler-.nalL!'of lacil _'es by trucker 1L VU4.,LI.L± progress has been made, the full economies of th,is development have not been exploited. By allowing the larger specialized firms to concentrate on inter-city line hauls, leaving pick-up and delivery services to the small vehicles of ,onignors, or consignees, it has Lea to improved productivity and materials-handling techniques as well as o1I-Ter traffic congestion in the towns. The mission reco;nmends that these developments should be encouraged.

Highuay User Charges

37. Truck transport economics should alzo be considered froma the standpoint of hi-hway costs in relation to revenue r.ceived from the highway users. That is, are highway users rqaking *s reasonable contribution to the cost of providing, maintaining and supervising highway.s? In an effort to arrive at what may be considered as the true highway tranlsport costs the mission carried out a detailed analysis (sce Ajpendix A) relating the average daily numrber of trucks on roads of different design and surface type. Given the assumptions nade, the results are summarized in the accompanying table. By generally comparable standards, t!,e rnission is led to the conclusion that trucking is basically an economic and efficient mode of transport in Mexico. In less general terms, however, the efficiency in specific operation --rould depend upon such factors as the types of goods carried, the distances hauled, the size of vehicles operated, the type of road surface, the annual average number of vehicles operated, etc, - .L -

MnMTTfTt' ll.)A 1-T-Tn 7T -1 .,. n l M me r TVrnTrflf T .'\: Th 'rr5T:c' 1nL UA lILHrrIU S .JA--' LU J1 UI I IVZrIUHEL 1LJLUI I Y7Z

Total Initial Cost Total fraiusport Surface Average Daily of High-way- Cost .per metric Type Truck Traffic (Ps. 'iC00 p. Kn.) ton/kn. (eentavos)r

Asphalt 780 1,000 26

Asphalt 600 750 26

Asphalt 525 500 31

Asphalt 41O 250 34

Gravel 300 150 49

Earth 150 50 70

a/ Includes ve,hicle o..jecation, amortization, mainten;ance and supervision costs of tii: hiLhuray. Tor as3-um:tions arn -iethods, s_e Appen.ix .

38. The missio- would also argue t,It hi,rhw.owy zisers as a grmup appe.ar to be ,a'rinT a reasonable cortrAbution tow'irds the cost of highfway expenditures in ?Ilexico. To illustrate, the replaceien-. of the w;.ole of the 4'exi can rj.(^ay syzte at c:.rre-t prices .%ould cost soie 17.80 billion pesos. ` it i!i assu-nel t'at solit 5 :-ercent of tne 'vo.sent total road lervVti would not be replaced because it Was outlived its oriinal economic purpo.e, than, cn Lhe basis of average life of 25 years for tl-ie hizhwavs tm)e antount of ar annuity necessary! to amortLze the investment, at 8 percent interest, oul-i oe 1.22 billion oesos. 'o t;his ,iust be a-ded annual mainten-ance costs of 0.30 billion pesos, givin:: a total of 1.'2 billion pesos.

39. The taxes paii by ve1licle .;4r)ers i.n 1962 a,rioucted to 1.20 billion pesos (see Appendix iable showin:- ii.-hi;ayr user revex.:es and highaay expenditures L959-62). This ficure, however, excludes vehicle registration and drierpr license fees rollept.ed and ret aineri hr t~he -tate. '-ovvrnr ments as well as special taxes paid to some of these [overnments by propertv owners whose i%nci has directlv increasel in value as a result of new highway construction. In addition, some 1oroportion of general taq3,tA on G01-nl hA nl nAtedi as a-. -ntr)+Yi litj on for-a!ijni aive andr so:il benefits wihich accrue to ttie aeneral public fro.n the highways. Thus it can hp,be cn thatl thep ft-nl cont+.ribhtioAn h e direct benefi ciaY ies of tFhe hi,hi-fa, syste;m is fairly close to ttie 1.52 billion pesos figure above. - 17 -

40. This does not preclude the need to increase puoiic savings from this source since another large highwiay investment prograri is about to be embarked upon. Nor, in the mission;s view, does it necessarily mean that each group of highway users is bearing an equitable share of the total expenditures. Also, since a nufober o,' uneconomic branch rail lines will inevitably be kept open for a number of years ahead for standby use by the travellin,g public as a whole, the mission feels tnat tax revenues from hifrhway sources could well be increased so as to shoulder all the costs involvel iore equitably.

l. T-he nission believes thiat for the pur,)oses of d:lnnning, steps should be tah-en to establish a "Road Account," which; wouli enable tc.e relationshin between road e:cpenses and road user revNenues to be clearly seen. By "fRoad Account," tlhe iiission mean; only an accounting relationship betwfeen the various taxes and fees TThich -re attributable to the onmership and operation of motor vehicles and thle expenditures on the highway system's construction arnd -aif.tenance, policlng and administration. It is not meant as a "Road Flind" in ->he usual sense of soending on highwa-s the revenues received fr:-l highway users, but ratner as guide in the allocation of resources.

42. The "Road Account" envisa-eJ woulri ni, involve any change in governmental fiscal or tax instituti)ns. It woJid si-o.Ly be a state:;ent of total receipts against expenoitures. The maintenance of exisLing highways should have a prior claim on tne funds availabie before reconstruction or new corstruction projects are :>ervake-, ard thuis, the minimum funds available for new investment becomes apparent. it thus acts as a rouch guide to the Government as to when and from which aroups additional user taces have to be raised if existing revenues cannot meet planned hie:hway expenditures.

Administrative Control

43. The Department of Tariffs oI thie Secretariat of Coaimunications and Transoort (SIT) fi..es an-i controls the rates char-c2d by "for-hire" trucloars (i.e. co!mion carriers) permitted to operate on the Federal highways. The good.s c2rrie,-l have heen dc-viddri; on a rougwh value basig; into five speoa,u.te classes for each of' which a oeparate rate is plblisned for 10 km. -'istances bhnt,rTn 20 to 3,500 kms A numhcr of' Pxc-ot.i ors, to thn hnici tari ff are eitner possible or f;-tandatory. ror examl?e a 25 purcent increase is allowed for -the use of rofrigerated vehicles a 5° percent. rec1rtion must be quoted for the transport of Federal Jovernment property or goods; a 15 percent increase ha4 to we charged on innnrts Tien th ryare first transported witllin the Republic (with certain exceptions w'nich are mainly ofoal: -orl.f'f'¢d- un t.r a 9~c~ Vat- rror ucgltvion tn m.nt.eQ isc nossibi fleo application by a trucker if both the ~CIand the ajoriy of other n -r application b)y a trucker if both th-e "'-Cr and the iriajority of other - 18 -

approved operators on the route agree, etc. The suoervision of these charges in practice, whicn must be docu,nented by standardized waybills, s carried out by WCT road patrols operating under tile Department of Federal Transit.

44. Several questions were raised in tne mind of t'ne mnission as to the effectiveness and desirabilit" of tnis administrative control system. Does the price rigidity Fhich operates have the effect of inhibiting technological Pffic.ienev if rates are net too high? If new cost redicing innovations are intro1iced, Jo the benefits accrue only to the transporters or are ben- ifiti also nr'P(i on to. oo!rs.mPr ? Is tVYe 15 o,rGnt- discrimination aL!ainst trucking ori tr'F carriage of imports keepintg triffic on t;e railway and in- hihitinc4; i. ter-city traffic q bstititiAcn vi eithin S'1xico?Since the bulk of inter-citv traffic consists of manu'actured and processed -oods, which CoenmnnIly require a wj.).icl2r rr.7e oy' har-il-ing tihniques thl.n ,hno-e renuired of rail traffic, is a standard classification the nost satisfactory rate-making mechanism? roes the presert classification reflect acculrately the costs inv-lved? To what exta-t has this s. *te been an7 inducenent to shippers to set un t-h:ir own.. trdns?oo-t de,)art.ne!tJ- nt- idi A rol'int t-ijon procedures, etc? While the nission cannot -)ffer any satisfactor- answer to these questiors witho1lut ,Dre specific case deta'ls, it feels t+ey should be raised, especially in view of t:ie ray t;,e permit systen operates.

h5. 5-rom the information prov fied to tne mission, t:,ere are so;ie 7,5OO p ermi r,i+ elhLcles engaged in re-ular "i'or-nirell Irel-.-hit anA expres-, stel,Victs; some 15,000 vehicles authorized to hzandle only "particular" co,mmodities SiiCtl as bee,=, soft drin s, etc., and a fuLther _ ,±VU ZpeciLiwei vehicles such as road tanhers, furnii'.ct v-;ns, etc., operatirog with permits. There :4 ~~~~-~~ ~~ -- c-rfm 4- v- are, ho,;vli, lZi,5 *oLLicl± - AiJUWU[Leb! by 1ILe .,Cl tD JUt Upe,L_U.LL on the Pederal hignvys and w-vho are outside its cortrol. nlen a truck op- erator canrijot ob:-t ain a per:,mit fr-rU'! tthe vC 'hne iru

(Mexico)

Rcad Design ype and Surface pte

Iteu Special 'An "B" C (kaphalt) (Asphalt) (Asphalt) (Asphalt) Gravel Earth

1. Total Construction Coat of Road (inc. R. of way ind engineering) per-kui (Pesos) 780,000 600,000 525,000 410,000 300,000 150,000 (U.S. $) 62,400 48,000 42,000 32,B00 24,000 12,000

2. Annual kmortisation (8%/2(yr)=10% (PesoEs) 78,000 60,000 52,500 41,(00 30,000 15,o00

3. Anmal MLinteaance Coat per-km (Pesoa) 9,000 8,000 7,000 6,CO0 5,000 3,000 (U.S. t) 560 480 400 320 240 160

A. LArni Capital and )hintenance Coat (Pesos) 87,OD& 68,aoo 59,;(00 47,000 35,o0o 18,000 (Lines 2 & :3)

5. Add ?., for Adaiaistration, Pollee, etc. (Pesosi) 6, 500 5,000 4,O500 ,500 2,500 1,500

6. Total AsDmem1 f1ighwa Cost per-km. (Pesosi) 93,500 73,000 6b,()00 50,"0M 37,500 19,500 (Lines; 4 & 5)

,. MUmOSD.. of 6. a Lye attributable t2 1 6 0 0 :-ucks/ (Peos-) 6,1(?2 g3, OC 38, a0O 303 22 S 11.,70o

11. Awirge Nuber of Tucks lper day 1,000 750 500 250 150 50

4?. iverag onber of Trucks per anmm (6 day week) 312,000 234,000 156,COo 78,000 46,800 15,600

MD. Total ?tas uovsd per-km. of road per annum. V 1,872,000 1,404,000 811,'00 405,600 175,500 46,800 (Line 9 x 75% of truck size)

IL. Aveage Vehlicel-pwating Cost per-km / (Pesos) 1.37'5 1.375 1 .375 1.375 1.375 1.375 (ret of taxes and profit)

12. Avere Vehiicle-Operating Cost per ton-km (Pesots) .029 0.29 2.264 0.264 0.366 0.458 (Line 10 + 75% of' truclf size)

13. Annual ighwajr Cost per ton-ks (Pesol) 0.03) 0.031 0.0(47 OD75 0.128 0.250 (Line 7 + 10)

1U. ^Ort CWt Dmtric tonkm. (12+j&2(Pesos) 025'uQ±otal 0.260 O '3LL 0.339 O lh94 0.708 (Lineis 12 & 13)

(34uinLalent tlo U.S. cents per habrt ten-alle) (3.00) (3.02) (3. 61) (3.93) (5.73) (8.21) (Line 14 x 1.30)

Notes L JSVnLg Basse and Paving equals 40% of total construction cost of road, of wtich one-half represents the increrrental cost for trueks. Therefore, for 100 pesos spatt it is agtsused 80 pesos wculd have been necessary anyway for private car and other uses. Asu-lg firther that because trucksi equal 50% of the traffic they ter oae-half of this 80 Plus 20 peSOl incrmenteLl cost to provide stronVer base and pavement for their use. jiwuimi average truck of 8 ton carrying capacity trucks on Road Design Tyres 'Special' and 'At; 7 ton on 'B' and 'ICI; 5 ton on Cflnl and 4 ton On earth and they operate with at overall load factor of 75%. / YFahicli Operating Cost net of taxes for the avetrage truek on the highvay. It is assumed that as truck sizes declinke vehiel,e costs per-km fall but that this fall is offset by lover CLeSig standaras and poorer road surface types which raise actual rehicle operatillf coat per km. The cost Ier ton-im effect - is shown f'or different size vehicles on the different roads in U.na La. TABLF B

20_

R A r , T A't.T ,DThC

h6. SO) has issued a set o; de..i,-n stardards to be used for roads accordinrg to the expected or present traffic volLLMe and the topographic conditions of the areas iJ which 4he i-a0 .ri1l bIe bali^ or iaproved. IVith regard to th;e traffic volume t'he roads are classified as follows:

Yearly average iaxirnum hourly Type of Road ia' ly traffic traffic p/y-ear

Special over 3,000 veh. A l,R03-3,000 " 180 - 360 veh. B 500-150 " 60 - 12o " c 50-150 6-6) It Trails L,ss than 50 Less t,han 6

47. The desizn stal-aarr2d for th-iese roads, accorains: to the to)ography are the following: Flat Si -?ollintl ill .!dium leavy Specia.l r-,Wpe (1) Unit WounrtrY Countr . tncuu. Anous. Design S,to.ld /n (,0 Ji 50 T Wlidth of E-bPn'.t meter 9.0 9.0 8.5 8.0 Width of Surfacin.-- rmetwer 7.2 7.2 7.2 7.2 Minimun Radius of Cur.vat-.re mieter 10 6Y h 25 HIaxi:wJm '^-3zde .0 6.0 7.0 8.0 .YPEA Design SDeed km/h 70 60 50 40 .qidth of Embankment meter 9.0 ).0 8.5 8, lqidth of Surfacinrt mneter 6.1 6.1 6.1 6.1 iina.mnum taadius of Curvature meter 14 l04 69b Piaxi-Lmin "Tr ade h.0 5.0 5.S 6.0 TYPE B Design CE- ed 6i/h60 5J 40 35 Width of ,iibank:nent .meter 8 8 7.5 7.0 -.idth of Surfac:ing meter 6.i 6.1 6.1 5.5 'Iinimu, Rauji-s of Cur7a.tire metei 104 69 h 25 11aximuw Grade L4.5 5.5 6.o 6.5 TYPE C De3ign Speed km/h 50 O 30 25 Width of Embanknent meter 7.0 7.0 6.5 6.o Width of Surfacing meter 5.5 5.5 5.5 5.5 Mini.mum Radius of Curvature meter 69 b4 25 17 Maximum Grade %5.0 60 7.0

(1) Geometric design starrilards for "Special typo" roads are shown only for general information; these standards may be ;nodified in certain sections to avoid costly reconstruction. - 21- TABLE C

TRUCKI2JG LOAD AND DI.-',I'SION {SSThi 'IONS

48. Maximum axle load and vehicle dimensions are set forth in the I'Lev de Vias Generales de Comunic3cion." The standards below are enforced via scales located at the sides of the miain roads, which, is in accordance with modern practice.

Maximum axle loads kit.

1. Sin.g71P rear axle truck with two tires......

2= Single rear axle tru.cn .oith four tires . ; = . 9.000

3 . Tandem~ rear axyle truck wAith four tires, each----. = 7-5

;yaximmirn overall 1en-r±.h Mjr4ters

1. Single truck with to or hre axles ...... 11.60

.2. T.ac-orUsei-I- traUiler wi4t axes ...... c. . ... L..'

3. ractor-semi tGrailer ;witl } ,e...... 5

*e _ .LiUUt_j~d±t,Ii.iJLacL.LIU~_L .. ,d.j_ _ _ _1 W LJt4U[17 W - I 1 )A n t4a mluilrl t ' t l 'i gll ......

Mlaximum tot-i'l 'r--pig'-n ...... I ...... 4.i - 22. TrABIX D

HIGHWAY USER REVENUES AND HIGHWAY EXPENDITURES, 1959-62V (mi l li oin n f' neAsn-.)

1959 1960 1961 1962 Total

.L. UG6 Z$U.L4 .L O.Al -tfI) -tVU0¶J+1 I:1A. 2. Assem.bl- Planit Tax 129 125 208 226 688 3.nre an' lule rI-duction Ta 283 4 8 5 4. Diesel Vehiicle Tax 4 5 7 9 25 I-, I I n n~~~I I . -I . 5. -ederal e-istration-x 4 _l C_ 3,

U±er-Taxes - Tota'L 640+V 653 (UV __2,

6. ±I:lPurL L'u6Leb 178 S/ 186 20C227 7. Sales TIaxes 53 65 66 66 ]/ 250 8. ther ..axes }1 o~~~~~ o I.7 1w 89 3 U. U 1n1_ _ f__ .

y . r t:ut-VL.L L)LiO trict Diolt' u0 all abovre 124 142 150 157 573

Grand Total _ 1,050 1,156 1,205 4LO'9

B. Expenditures

1. Construction a) Federal (Open Highways) 462 351 362 383 1,558 b) State 123 145 115 109 492 c) Local 203 83 441

Total w74 6 2, 49

2. Maintenance a) Federal 329 250 255 263 1,097 b) State )U yD oi °^ 2V[

Total 259^cw16 343 1 oY4

Grand Total 1tl17 860 UluO-c,7

Source: Secrt;t.riats of Finance and Public Works. rotes: 1/1 Excludes TollOJo i oaas. Excludes duties on trucks in first half of year. qJ Estimated at previous ycLr's figLcO* f Excludes vehicle licence fees collected by the States. P0RT2

49. Five explanations are comnonly offered to explain the fact that despite its long coastline of some 6,300 miles, Mexico is not a major maritime nation. First, the strong centripetal pull of the large market in the center of the

co tt J wahich is separated from the seaJ by MLo-ULat.ain b arriers too east dCi wesv, and in which 50 percent of Mexico's population is concentrated into 10 percent o i georahicl e. S ndy the expar.ding market and source ofs upply across the land boundary with the U.S., which may be crossed by rail and/or by road" azt sonne Ao zen poir.ts. MI,;r.'y1 -the physical1 -.d cialo-1a diffcul kV A1 % LILk.L. ".L~l~ ULI~- jJ11J D.LkLdL d1LiC JLIdAa%.LL1 4 d.J. .LL.Lk.;LLU.I ties associated irith expanding population settlement, agriculture and industry aLor.g u,ie narrow coastal strips. FILo-tLy1.L, the limited range nld Vu-rt-e: Uo Mexican exports consumed by countries other than the U.S. such as those in u,ope, South America aid the FarI ast. And finally, the concentration of a large part of its existing seahorne trade into the hands of foreign shipping

50. 'under an ideological slogan "La i'iarcna hacia del Plar" which is intended to make the public more conscious of the wrider prospects for a future maritime life, recent Administrations have initiated programs of port improvement comprising the building of new breakwaters and new wharfs; the deepening of navigational channels by dredging; tne improvement of ,ucn port facilities as bunkering, water supply, road and rail connection and warehouses. They have also introduced programs to stimulate the expansion of the fisheries industry, the enlargement of ship-repair and construction facilities as well as programs of naval development. To a limited extent, considerations of national strategy explain expenditures at some ports which, at present, are of restricted economic utility.

5i. To counter-act the pull of populatlon and industry towards the central part of the country, employment opportunities are being created in the coastal areas by measures designed to encourage the decentralization of industry and by the development of integrated river basin schemes. Their consequences, together with the search to expand overseas export markets, are expected to alter the balance of transport costs and to encourage the growth of the country's merchant shipping industry. To satisfy both existing and anticipated needs a program of further port investments has been proposed. Before examining this program, however, it is necessary to look at the present organizational structure and condition of the ports, which vary from little more than minor fishing ports to Tampico, the nation's largest port, which has handled over five million tons of cargo in a year. 'Port OrganniyAtin ann l xair

5.Th Secretar-.a enarrna is +n' rep hible ahr,hcii r. for the planning, design, construction, development and dredging of the country' s ports, other than thle so=called "Free Ports" (s below ). e c7i ni,+outf ts func- tiors rests with six aajor depart.neits of tne Secretaria wnich, nowever, nas no d r A contlArol over the Jay-to=daJ operatons il tne ports. N'or Js theer any other single entity resuonsLble for supervising; port operations. These

are _ri out li4y sepateJ.. dAJa4 of .en u nrelted iV -.AL V A vessel arriving at one of the main ports will bc received by a "Port Captairnl' -shoU =U.LLdiJ8U-rLraned forUL1it.£'L 1A.Ai. U Lr it ihas beeneroiUalonuII bL.LJJ-Uy a pilot, its cargo is moved by a concessionaire--frequently a stevedores' syn- udcate. rlie `1ecQrailJca± e-u±ripUUflel use1 to hle[IU th-e cargo ;aay be o-wneU, I- nanced and ooerated either b, shippers or concessionaires, which as .qcntioned are frequently syndicates or stevador.s. Cargo cnecking is carried outu by a series of business and -overnnent checkers before they are finally cleared and accounted for Dy tne Cus.oms authoritves themselves. Port security may be controlled either by the Customs Department or, the local police force. Cargo leavin- tle oort area for transport to inland (iestir.ations may have to be loaded into rail frei;at cars or trucls by still fPrt;ier ±abor groups. £ihe responsibility 2or dred.gi!r, of ,,orts and s-me of their navagationai aids, meanwhile, rests with the Secretaria.

53. In the absence of any centralized direction anu control of these multifarions port aCencies, the s.nooth o-Deration and the rationally-planned developoment; of needed facilities and installati-ons are, in thirmissior's opinion, difficult to attain. The practice of political appointnents of engineers is also an obstacle to planned port development. Apart from being wasteful of scarce experience and abilitv, the uncertain tenure of engineers' appointments appears to lead thera into short arc! rnedium ter:n projects rather than into long range plans which are so much a par-t of port planning and construction activities. The quick turnover of engineers has resuilted ir a number of cases in which a project begun by one en-ineer has been changed. in that originally envisaged and sanctioned. In some instances there has been an abandonmnent of projects started. Such changes, in addition to raising costs, are both needlessly frustrating to contractors and inconvenient to the operations and plans of port users.

54. These weal-cnesses are partly a resalt of, an-l partly compounded by, the practice of carr-,Ting out major construction wor!;s in the ports on the basis of uncertain and fluctuating annual budgetary allocations. At the time of the mission's visit, a number of important and useful works lay incompleted because no funds were available. In Veracruz, fDr example, 700 tetrapods miade during 1961-62 for the protection of the breakwater are unused because of the lack of funds to transport and place them. In the same port, needed repairs to a quay wall were suspenled in 1962 for tue same reason: -,eanwhile the con- tractor's plant remained on the site uaiting to restart work. ln Tanpico, a reinforced concrete riverside wharf which had been finished some .months earlier was still inoperative because of the lack of funds to comnolete the bridges joinikg it to '6he river bank. - 25 - 55. The ports generally operate on a one-shift basis only, with the frequent ue off overtimp +. rioihlh rates= At those bhrths where good layouts and Working conditions exist, labor productivity is reasonable. In these instances, tonnages of 500 to 600 tons of general cnrgo per year are moved npr meter length of quay wall. Such performances are about average for similar ports working on aone-shift.b. aThe in ot. a n; Tho tconeunca of one_.shift. wnrking is that the port installations are underemploved. More intensive use of these nnstal+ion on-d the ai equi.n.nnt, b-b-rog ht butb the-_intro ion of' a second or third shift operation, would automatically increase port capacity.

56. To the mission it seemed both generally agreed and accepted in Meexico thLat greatver use couald be m,lade olf 4the1 excisting Dort, faci.litieso ifL two or even three shift working was introduced with a resultant reduction in the turnaround tirL,eL~.AIL ofUJ ~Lk.Lj.ships. ThI ilt: 0XA.DPLU_L1Xsnwsg-e Vt J,.LVULlIA oU understad.L IUt I u'dI ll "ha' ~1 1'W1.L.Le whiethr lulJere t~wtJu.u oudb ue little opposition to the introduction of additional shift working from the labor uruU IUC1O.LVLltrC, the Port Captains and Customs officials, whos w are paid on a time basis supplemented by overtime working, would not welcome such a chxange.

57. -Lb cari be readily seen in many ports thdb va.LudauLe cargo 5Lorage space is wasted partly because of the excessive "free-time" allowed, and partly because oI the slowness of the Customs authorities in disposing of unclaime-d goods. While the majority of Mexican ports are not overcrowded, the mission feels such practices are not conducive to an attitude oI port efficiency andi should be stopped,

58. With the exception of some of the bulk-handling installations, the ir3sin feels that there is room for considerable improvement in port operations. V,fnilst it is realized that facilities and mechanical handling equipment may be inadequate or in short supply because of the si-ortages of public and private funds, nevertheless, greater efficiency and output could be obtained by better planning of port operations and a greater control and co-ordination of the port operating agencies. To the miission it appears that there is need for the employmentu of experienced port operations experts. Such experts, however, are likely to be effective only if the port operations are under a unified control. The v7ree" Ports

59. Mlexico has two "free" ports - Coatzacoalcos, on the Gulf coast, and Salina Cruz, on the Pacific - which under the existing law are operated by Puertos Libres Mexicanos (PLM). Although called "free" ports, they are but another two ports operated by a separate agency. They are in no way free ports in the usually accepted ser se. Perhaps the advantage they h,.ve is that the PLM is '.he only agenev operating in the ports with its activities being free from the Customs Department, the Secretaria de Marina, the local police, and labor syndicates. The PLM has the added advantage of collecting and retaining port charges and expanding its own resources on port facilities. Over all, the PLM appears to operate more efficiently than the majority of Mexico's other ports. However, even if it were thought desirable to expand the PLM so as to take over the other ports of the country as a step towards the creation of a national Ports Authority, there would be many legal and substantial practical difficulties in the way. - 2u -

Present Condition of the Ports

60. W,lith the lack of continuous, centralized control and the frequen-t short-

age of funds to cnrry out .mnintenance, the present. nfhirsil condifion o:F the ports leaves much to be desired. Damaged facilitiea are frequently negLected or repanirs are carried out+ so long after the dam1ge has occuurrerd t.t t become more extensive than would have been required. In some inistances the C'uStoms aut.horities, as t+ -1-nly ,-, rea available, have carried out repair work and even built new structures. Although there are many new fJacilities Jin Jhe ports, th.te inajority consist ofU oltd quay LValO.1S or riparian wharves and jetties.

61. W,lhilst some ports have a sand bar proble.a across their entrances, in general, acLess to the ports i5 easy- and the dredged depths alongsiue berths adequate for the type of ships ernl)loy,ed in the present pattern of trade. There are no radarU nStallatn-s in anI-y of the ports and raiao contact with s1.ipping is rudimnentary. The marking and lit.ting of navigable channels and approaches is also of an elementary standara.

62. In so,ne ports, modest amounts of nodern aechanical equ-ipment is in use. In others, because of labor opposition, only the minimum of ,echanical equip- rnent is emploved, and that is frequently old and ineffilcient. Site conditions are often not suitable for the movement of mobile equipment

The Port anid Associated Development Program

63. The over-all development pro-,rmn for port and associated irnprovemsnts, submitted to the mission, for b963-65 is as follows:

Pesos (maill.ion) Secretaria de M.larina 1,012.0 "Free" Ports e.3 Alvarado fishing port 82.9 Director-General of Lighthooses alnri H1ydrography 13.4 Director-General of Niaval Construction 9.0 Director-General of Merchant iviarine 8.8 Director-General of Dredging n.a. Cargo-handling equipment (v.rious) n.a. Total 1,133.4

64. The Secretaria de AIarina portion of the program, which totals Ps. 1,012 million, is divided broadly into Ps. WJh i-million for ten Pacific coast porTs, Ps. 442 million for eight Galf coast ,)orts, and Ps. 90 .raillion for the reconstruction of various breaw.4aters, groynes, etc., -which are not located within the immediate port areas. iChe followin- table shows a oreakdovm by ports for this portion of the total program anl the :niission's recommenJations theretc: - 27 -

SECRETARIA DE MARIi'A PORTION OF PROPOSED LNVEST-IJENT PROGRA4 & HI1SSION IhLOL'EACATIONS -

(Pesos million)

Proposed Mission Location Expenditures Recommendation Coasts

1. Tuxpan-Matamoros Intra- coastal Canal 281.0 _ Gulf 2. Puerto del Bajo Balsas 159.6 - Pacific 3. Veracruz 95.5 95.5 Gulf 4. Manzanillo 80.0 Pacific 5. Acapulco 64.9 24.0 Pacific 6. Guaymas 52.5 47.5 Pacific 7. Mazatlan 48.6 48.6 Pacific 8. Ensenada 37.0 37.0 Pacific 9. Salina Cruz 16.5 16.5 Pacific 10. Tampico 16.0 16.0 Gulf 11. Coatzacoalcos 15.5 15.5 Gulf :12. Ciudad del Carmen 15.0 15.0 Gulf 13. Progreso 10.0 10.0 Gulf 14. Puerto Vallarta 9.1 9.1 Pacific 15. Paredan 8.0 8.0 Pacific 16. Cozumel 6.0 6.0 Gulf 17. Puerto Escondido 4.0 4.0 Pacific 18. Lerma 3.0 3.0 Gulf

TOTAL 922.2 355.7

19. Port exterior works 89.5 89-5 Both

T0P AT. 0n1l .7 )J5 2

Free Ports 7-3 7 3 Lighterage etc. 13.4 13.)4

Dredging etc. * 100.0 100.0 TOTAL 1141.2 57)4e7

* Mission estimate (see below)

Details of each port project are shown in Appendix A.

65. The parts of the above program which are designed to make good arrears of maintenance, to complete unfinished structures, to reorganize existing facilities and to expand present facilities for commerce, are generally well-conceived and appropriate to the needs of the ports. The two major investments, however, are for new constructions which are of uncertain immediate need and are conditional on other investments about which firm decisions have not yet been taken. - 28 -

66. The largest investment proposed, Ps. 2t3l nillion for the 53: k-i TLxpan- 1Iatamoros Intracoastal Canal, has 'been the subject of considerable investibation as to its notentiiai economic ju.5tification. Tie engineering stadies on which to base firm cost estimates are not yet coTipleted ror 'have hvdrological and site location investigations in the iatamoros coastal area been concluded. The miassion Feels that. on the evidence miade available to it, the case for the project is not proven. In view of the road and rail improvements and otlher new invpetments nronoqed in the neighboring area, it recomiends that a consulting firm of international repute should be retained to analyze the information so f2r ne-mumulnted ann to investigate sore closely the economic and engineering feasibility and tne costs of the project. Such an investigation silouald include a1 nnn pem;ini\t,irnn of t.he nroposAl for n Dort at Mlatamoros anJ an examination of tile development trends on the U.S. inland waterways with -Lhich the project Wurm.ol llr uin

67. Thiencrta r ~iiintyxr oninnA '. h Puerto -lo 'Aji alsas iron ore p^roject has led the mission to delete this item from its recom-nended port program. If, however, a deciSio.n w.as beakntonh t go ahe4an lrj thh t. i r_ 3roiert. -nr fi nqrcne made available, the Manzanillo port project would be unnecessary since it. sLVJUdU prove possib le tuo hande aLl thLe i.ron=or through tL!ep scheme. For this reason the mis.ision has deleted also tho Ps. 80 mLillicn

iLnvest.nLien't au AUanzanillo. lt is aceoe t-ed, hLoA'wever, ti^.atU s'-'e'a' .A e ditures mawr be necessary for general imeprovemrients and reconstraction at this *,anganese exportX port, bLut'ano recent. A that uoild be required.

68. The Aca)ulco oroject of Ps. 61b.9 nill on consists primarily of Ps,35)9 ;-illion for reav^ai t'oiCs and[ Ps. 5.0 rLTLillo for d ,ri silo,J. Deiiosast the naval works should not be a part of the Civil BuJget. ilhe grain silo project whlicih is linked with a similar project ata ua-mUias, does not appear unnecessary at the moment. There is sufficient carrying capacity available on the Pacificc and .Natio-al ra LWa7?-s to transport additional rain from VTe northwest Pacific coast to the >exico City area at a low imarginal cost. ihe divrer- sion of large voluiaes of grain traffic which at present is beiiq7 carried by the railways would only exacerbate their Present unsatisfactory position. Thhe mission, therefore, recommends t6e postponement of th1e two gd,rain silo projects,

69. The other investment proposed for iAca-ouico, which is tih-m- nearest Pacific coast seaport to -Mexico Citv, is Ps. 2L million for a new 300 meter dharf, new warehouses and a new road connection for a new port to be built at nearby Puerto Marquez. The mission believes that the exist-ing facilities at Acapulco could be used more inter,vely by iaorkinZ longer nours, by increased mechanical handling and by generally improving the productivity of labor. As a result of such measures substantially larger voLumes of traffic, which is mainly inward traffic, could be handled for a nuimber of years. The town authorities, however, are opposed to a commercial port in the m'idst of their valuable tourist area. A small park has been developed adjacent to thie wharf; trees have been planted behind the mrain transit shed partly as a screen; and, lbecause of the different levels of the mTunicipality's road and the transit slhed floors trucks cannot pass throu-h the back doors of the transit sheds. - 29 - 70. Whilst the rmission is fully aware of the significance of tourism to Acapulco and the large property investments which have been made, it feels that even a doubling of port traffic over the next decade would not be detrimental to the existing amenities. However, because of the intense conflict that exists and looking to the long-run future, the mission believes that a gradual transfer of commercial activity to Puerto llarquez should take place. For this reason the planned invnstmPnt for this .)rt of t:-ne works in the program has been rbainod with the reservation that tthey snould not be given hi-h priority and, if funds are scarce. A major Pffort. Ashould be. mnrlae tn resoqlve th1e r1onndtp and to improve the productivity of the existing facilities. If the new port is built at. Rhnerto Marquez and traffi transferred to it from Acapulco, the mission believes that it should be under the exclusive control of the centralized Port Authority recommended below.

71. than for the-h ;I ------at G4- t -1,S q.e 4i of +11. opinion that the remaining proposed port investAnents are justified.

72. The mission also recommends thae Free Port development programs at Sa'lir.a) Cruz0A.L,W.L ard' Coatzaco0d.L.A a'cos -whlichiL . L -ncl'ude±I.L. tA~U~± tl-. provisioIJL U V.L;sonLJIIJ. za newii dredge,Ldr edg! e the making good of damage caused by an earthqualce and the general rehabili- UtationJ 0f hlieU,Lo portsJariiu tUhiose of the DrcJ.o.L r GenUUeraUt-JL11.Ld.L of .Li tULoUse.s d.I 1 L Hydrography and Merchant Marine, as well as the general program for the irmprovement of breakwaters and groynes. The Alvarado fishing port, -. ich has been the subject of a separate investigation by Dutch experts, is under financial consiUeration in thne Netherlalds. The mi*siun has insufficientll inforimation to co-iient on this project.

73. There is a continuing need for port dredging and cargo handling equipment. No firm estimates of cost of equipment required for these activities is available at the time of writing of this report. So as to make some orovision, however, for these items the mission tentatively recommends an arDi- trary figure of Ps. 100 million.

74. In brief the program recommended, l-therefore is as follows: Pesos million

Secretaria de iMarina 445.2 Free Ports 7.3 Director-General of Lighthouses & hydrogrophy 13.4 "1 "1 1"iMerchant lvarine 8.8 Dredging and Cargo-handling Equipment 100.0

TOTAL 574.7

1/ Excludes Alverado Fishing Port. - 30 -

75. Tn view of the nassage of time during 1963, the followigi time-o_ tabling or port and ancillary inve;tmrent;: thrcuji , is rec-zJ=erde

Pesos million

1963 115 (of which 80 percent has been aPIP-Ovrred) 1964 165 1 QAI~~ I or)

Sub-totlal 1 7n

Carried~~~~~~~~~~~~~~~~~4 fowrdit

next program period 105

Total 575

MIrnt. I 4 I -, -1 76. ITh LU cosUiderUs tIat, Uth UveraI.Ll fUreign e2Uxchiage couripuieinu of this program would be in the order of Ps. 220 million, of which Ps. 192 million would be required in 1963-65. This latter s-umfl iS made up of Ps. 100 million for dredging and mechanical handling equipment and Ps. 92 million which represents a foreign exchange component of 25 perceenu for une construction wor•s.

77. ihe costs of the program are based on local experience and present day rates of labor and materials and include a 15 percent contingency allowed for the three year period. Expenditures by the Secretaria on ports during recent years have been as follows:

Year Pesos million

1959 44.4 1960 108.1 1961 66.7 1962 81.8

78. Because of the volurme of uncompleted vork which could be re-started at any time, and the arrears of maintenance whicih do nut involve engineering deiays in preparation, the mission feelc the above recormended expansion program, although an increase over eypenditures made in recent years, could be satisfactorily handled. The delivery of equipment for dredging and mechanical handling would be expected to take place mainly in i96u and 1965. Ir it is decided to go ahead with any of the major construction projects it would be necessary to increase the Secretariais technical staff or, reoferaUl., engage the services of outside consultants.

Finances of th:e Ports

79. For tne port installations provided through the Secretaria de 1arina's appropriations from tne Annual Budget, no charges are made eitner for tne use - 31 - of the facilities when completed or for amortization of interest on the monies invol-ved, In the past, £inancial appropriations have been inadequate for nXew construction and the maintenance of the facilities. Since there is no centralized authority in the ports, there are no inventories oI assets, balance sheets, etc. or other means of financial control.

30. The Secretaria y Comunicaciones (Tariff Department) sets the rates that are charged by the various concessionaires in the ports. The rates set are) designed to allow for: (i) wages, (ii) social services, and (iii) maintenance and acquisition of equipment.

'i. In general, the rates in force are cheaper than, for example, in Brazil or in the ports of the U.S.A., but the services provided are poorer in comparison. A simplification and revision of the rate structure is being undertaken at present.

PORTS R_CO?4Yf,DATIONS

Administrative Changes

82. In order to reduce the number of different agencies operating in the ports of Mexico and to introduce some effective co-ordination of port activities the mission recommends that a study be made of the present organizational and administrative problems. Such an investigation should consider the case for the introduction of a centralized port authority system designed for Mexican conditions. In the Mis3ion!s opinion such an authority, in addition to providing for the exchange of information and the rendering of assistance to port users and operators, should have the power to deal with the problems of port obsolescence, outdated installations, and wasteful ,'lication of facilities. It should be authorized to plan, construct and maintain the existing ports, including the "free ports'l as -well as new ports that may be built. Further, it should have financial control of the facilities and power to fix port rates and charges commensurate with the services provided at the different ports. Sufficient funds should be generated to ensure interest on, and amortization of, the capital involved as *ell as produce a surplus towards future capital development. The authority, in brief, should have financial and administrative control over the port services and organization required to meet the changing pattern of traffic, population and economic activity in Mlexico. The ;-iss-on aces not believe that such a centralized authority can readily, or even should. be created in one step. Therefore, wie recommend that the study should consider the manner by which a gradual centralization of authority could be brought about.

Greater Use of Present Facilities

83. Bv the introduction of a second or tnird shift working in the norts. greater utilization could be made of the existing facilities with small increase in eost= nne.r'tional efficiency could he increased hv imrovp-d cnargo-hnndl-ng techniques; by reduction in the "free time" allo%ed to cargoes; and in the spndeeier rlisposawnl of uinclaimedl agIrolor T+. rherefore that measures be taken to this end. - 32 - Present Port Canacitv and Onerations

8L. There has been no great e-mansion of gaenral cargo tonnages handle!d at most ports over the past six years (see table in Appendix A). Bulk petroleum nnfd sInhiir nnrirts.' TwThinh have ineae airp bhpingm hnnrVlei sati fn±-.ri1,v hy specialized facilities. Cabotage trade is growing, but it does not involve manor capit.n1 PYnnriitiivr in t-he prts. Sincz, however, a change *n the composition of foreign trade can be anticipated as a result of industrial. developments wi thin ;4exico which are intended to replace imports, to semi.- processed raw! materials ano so;ne rnineral ores, and a growth in Mexican exports, the iTnnrovenm,nt of sheds, handi.4- e n a -el,--, i t p 4 £ ~a~~vaj~ *U VflS- J'1v areas of some ports is necessary so as to accomodate the anticipated traf'fic. 4 /1 At n+thr a--nn.+ pr+ '.,c+here- iscnsd_aln n a n,ex-cGss nr.4-yr shr-cpciywhc,i'LA..WL a.L%1. 4 PL usecL, efficiently, could meet satisfactorily the immediate future demands.

The Investment Program

85. Other than for the following items:

a. The Tuxpan-.Iatamoros Introcoastal Canal, b. TLle graLci silos atl AcaJLU' cWlU ULuaY1JI-,, c, The Puerto del Bajo Balsas and Manzanillo IroUll ore/stee e lhandllng prooosals,

the developmen't prograimn appears well conceived, sounuLy prepared, ready for implementation and suited to the immediate future need of the Mexican eccnomy as well as the projected expansion of national maritime activity. The mis sion feels that further careful scrutiny of the excluded items is warranted and that they should be proceeded with at a later date only when a clear economic justification for them has been made out. The mission, therefore, recommends for 1963-65 a program amounting to Ps. 470 million of which the estimated. foreign exchange component is Ps. 192 million (or US'15.0 million appriate2yj

The Financing of Port Development

86. In order to avoid a continuation of the present unsatisfactory system of annual allocations for capital works, which often frustrates the early- and orderly completion of works undertaken, the mission recommends that the Secretaria de Marina should be allowed to enter into contracts which of necessity must run over into two or more financial years with an assurance that funds will be available for the expeditious completion of the projects.

ICRCHANT SHIPPr.G

87. Other than for oil-tankers acquired after the nationalization of the oil industry in 1938, little interest has been shown until very recently in the development of a national flag fleet. The present fleet is but a small f'raction of one percent of tne world's total shipping tonnage. Both Argentina with 1.3 million gross registered tons (g.r.t.) and Brazil with 1.2 million g.r.t., have fleets three times the size of Mexicots. - 33 -

88. Since 1957 the total g.r.t. of all units (including small fishing boats) has increased from 312,000 g.r.t. to 41O,000 g,r.t. in 1962. This 1962 total was made up as follows:

No. of Units Tvne of Vessel G. R. Tons ('000)

17 Oil tankers 127 1,756 Fishing vessels (commercial) 69 23 cOean-going freighters 70 212 Coastal vessels 33 564. Ferries nnd tugs 72 1,954 Small Cargo & Passenger Vessels 25 c)c9n S;mnll FishingoatPn+._ )

13,516 _l

89. From the foregoing figures it ijill be seen that less than 50 percent of the total g.r. . ca-n be classifledas suitable for international maritime trae In addition to this flag tonnage some 100,000 g.r.t. of foreign-.onned vessels oper at underv +the M-exican flg on a nrtar4 er bascis. T+ Jo Jntended to chcre this in 1963 to full Mexican registration thus increasing the total g.r.t. to ''510,000tons. ~1TheTb A AAA average ~ ,in. -,ar,.a a,,e of,.f'4-l~ the1o.,0icn,yy.,~in4 t flectCl ,~4 iss aboutal 4- °OOf) years, b.-"UV th+l,-.Ut latest additions to the fleet are fairly new and niave speeds around 15 krnois per hou0 nno _br_ 'o L1e gover____L _.__ne .n__ ex _:-J _L_1__ J-1_ -. 1. __ PI _n 4' 7V. DtStS k, L U; bIAi U U CiU] V2UL@UWIU.\U bUCE| 1-u, Uliu ;'1UA | U11i L | -U D is privately owned, financed and operated. Very little direct control is te-e-.rucisted b0ly thne Direccion-Gmeneral de- 1,1arina lIriitf tew1l(Dsl)r whIich isLzJhep responsible authority for maritime shipping. Its main function appears to be the operation of the country's two rmercanutile miarine academres at Vera Cruz and Mazatlan. The total annual output of these schools is 30 deck and 3C engineer oificers. wnen it is considered tnat an average medium-sized sea-goirg freighter requires 3 deck ofi'icers and 4 engineers in addition to the captain, it can be readily seen that the number of vessels of£icered by MexLcan nationals is limited. To remedy this an investment of Ps. 8.6 :Lillion is planned for a 1964 expansion program wihich is designed to increase the output oI cadet officers annually by 50 percent.

91. The mission was given to understand that the Goverrnnent's policy is to encouri-re ari incr3ase in ti,e size of tne ilexican -iirci1anF Tfleet to one iiliioo g.r.t. over a period of ti!o ,-e-rs. It i. anticio'`t-ar t ab r,ii iri'l be carried o.t -nainly by private enterorise si Poir?eo 1ex dze3 rt. t n'oop -1j 1 ILCt increase in its tanker fleet.

92. Mlexico has joined the West Indian Trans-Atlantic Steamship Lines Confer- ence which operates between the Caribbean and Morth-European ports. It is expected that some 20 percent of the Ulexican trade to the European ports wgill be reserved for Mexican registered vessels. - 34

93. While the need to provide regalar sailings uiider t';e Confereince regula- tions will be an incentive to increase the size of ti-e lIexican fleet, and while her fleet enjoys relatively cheao laoor for tt1 e :lanning of ships as well as preferential prices for bunker oil purchased at 'iexican ports, the timing of this fleet expansion can be questioned. International shipping is in the doldrums. dviany freight rates are uneconomical. Aodern vessels can be char- tered on a favorable long-term basis. There is a surplus of shipping tonnage. Old vessels. similar to much of the Tiexican fleet. are being scrarntd and replaced by fast, modern, large size, mnore economical vessels.

94. An argument frequently heard by the mission was that [here would be a saving in fore4-n exchange from ex-and±ng the size of +.th nationnl rlpt. There is, however, no a priori reason to assume that it would. The question ls whether goods wirll be carried nsore efficiently an cheplyr in .lexican vessels thlan at present. TikE ni:sson is of the opinion LnaL tee Government would be wellad-r -sd to study t1he +ret returns and fo C:* involved before encouraging an expansion of the sliipping fleet.

95. It appears to the mrission that it would be inadvisaole to encourage Uhe expenditures enJvisa.ed -L Ufio ulof tUfiti Lutle adL: UtpUvision -f ancillary services required to service, repair, operate and manage it. - 35 - P;.r,4 A ,endi-r A

VOLTiJ:,L, iI 7I2; 1XPJ.2 (I:;. r':. 1 )T '

I,-portvs Export s

Place 1956)u .L.1699 -L7V7

Aeoea-porus (Maiili

Acapulco 54 5 6 17 Campeche 4 + 3 12 Coatzacoalcos 33 68 575 1,3u5 C. del Carmen + + 9 5 Ensenada + 31 il .lI Guaymas 455 4h 126 161 iManzaniilo 245 21 126 201 Mazatlan 146 + 51 126 P1hogr-c 41 11 71 140 Salina Cruz + + 13 18 Santa Ftosalia 53 + 4-38 1,393 Tampico 249 268 3,525 1,597 Veracruz 533 515 367 _ 70

Total 1,813 999 5,321 5,971

B. Land-points (iain)

C. Juarez 675 252 359 369 Guadalajara 4 2 + + iMatanoros 344 90 676 2,073 Mexicali 391 242 230 93 Mexico (DF) 143 120 5 5 Naco 69 10 4 + Nogales 161 85 164 290 Nuevo Laredo 1,021 961 446 523 Ojinaga. 58 63 121 102 Piedra Iegras 315 141 184 287 Reynosa 58 81 59 995 Torreon 1 + 34 16 Tijuana 350 247 14 37

Total 3,590 2,296 4,7904,29h

C. Other points and ports 144 80 1,202 160

GRAIID TOTAL 5 ';,,.7 3,373 8,819 10,921

Source: Anuario Estadistico and Revista de Estadistica

Note; to nearest 1,000 tons (+ indicates less than 1,000 tons or not available)?- - 36 - POilTS: Appendix B

BREAKUD^DAN OF TNDIVIT)UAL PORT GCHE,PCS

S.mtbols E = Z'xpaim. ion o-i hert'in capacjtv 'I= Tlaintenance T = Improvenentcfexistir.r faci1ities a = Restart of previous project SP = State nf' mpv~reX ation OT Completion ',ime of whole project FE = Foreigr exch'ange compronont of !ihfle p~ro,,c~rt

b.ur,.ering-, as in Pabble I. hll c,stI in r_llions

1. TTIYPAM '7IA\M.sAI O TTFPPAfOA,TAZ'Ar PAMAT = Construction cf 580 km. oni canal 261.0 93;8 ,,VII~SCIP.2aV~i1~L ~ ~ d-4 - - Z- vIIQASU"-I LZ, . lbl...PI'J CclarehueU1~_-'J '.~ I ; frcaalt,f~ic L.-I--. or.' A. 2007, 281.0 100%

SP - Economic justification needs further analysi-s ar.d study. Engineering su'i±Z ±11 UinJL; -onLltiJon.th t i aL port on 4the coast near rI 4- a.Loro s should be finished in May 1963. Start could be tmrde in January 1964.

CT - Three years.

FE - 30 percent.

2. PUERTD DEL BAJO BALSAS - New project -ea worKs 21.6 1 14 Dredging 80.0 50? ,narves 5U.JO1 Services and access 8.0 >,, 153.6 bO,,

SP - This project, Liice trnat for jianzanillo, is designed to handle exports from t,he iron ore baseci industries in the swre area. Only one such project naay be neede& when it is decided to exploit tlne iron ore deposits. From the engineerin- point of view, a ztart could b;e made early in 109o4.

CT - 2 - 3 years.

FE - 30 percent.

3. VERACRUZ - Existing Port I 91.0 95% R 4.5 5__ 95.5 100% - 37 - PORTS! Annendix B Page 2

96. By relocating Pemex and the bulk honey trades and having the Mexican Navs,re-navedr ,'n their presnt. quay, some foulr berths TwAI11 hbeorne availab.le for general cargo. This will relieve the on-shore congestion at the existing genernl e-rgo berths and allow transit sheds to hp built. at thpe vacatepd erths and a rehabilitation of the existing general cargo berths to be carried out.

SP - An immediate restart could be made to the existing project. The Navy could moter rm1+ in a ftgr ann'rt arszta +t be mAd +t^ +h transit shed construction. Pemex and the bulk honey trade would take abbout 18 r too ^oaple+ alternative berh+hingMrrgnr-, emenr.t+

C~~TIZThree yea-s

FE1 - 25LL± percent. Ass2,..g se4l elI-I, is 'Dor*ed .'L1J. 2 11 .ZIV UIL L , <-L-L UIJLWVI.JJ Ls.. .LIIL J'J1 k

Ars.l A T4 OnUI L,A-4 -4±4 _ --- A.~ LJUAs. _JL' _4. Z 4. -U I- ±U- .1 tW U I Lt±' J 5AAPUC0 Eistngpot,buLOojcUisI to buil a ie-w port at'uev Marques.

New 300 meter wharf 20.0 New warehouses 3.0 Neu road connection 1.0

E 24.o

Grain silo (*) 5. Naval works (*) 3%.9

64.9

* Deleted from recommended program.

SP - Work could start by January 1964.

CT - Twjo years.

FE, - 14 percent.

6. GUAYVIPS - Existing Port

R 31.0 59%

I 16.5 T1% Grain silos (j) 5.0 10% 52.5 1C)0%

(*) Deleted from recommended program.

SP - A restart to the collapsed quay wall, the main item in this project, could be made by January 1964 if no unforeseen contractual difficulties arose. = 38 = POpRnTS: Aprti. P Page 2 O+vhe r um I"k c-in t he p ron-ject c ll rdI -st- -r i m.mnedJat 1.

CT _ Three years.

'7 ,VA 7 A T AIKT

7.. d:L'AC/O M 20.0 4l1 IL L'7. v _)J./O

au8) . 6 a )U,

SP - Practically all items could s-tart iimmediately.

CT 222_ - 3 years..

FE - 25 percent.

8. ENS,NlADA

E (150 m. of quay wta1l) 15.0 40O I 22.0 60%0

37.0 loo0

SP - 'Work could start as soon as contracts could be let.

CT - Two years.

FE - 15 percent.

9. - 18. SALINA CRUZ TO a-RMA

These ten projects are broken down as follows:

R .o 4% I 87.1 64s M 12.0 12%

103.1 3C10% SP - All could be started by January 1964.

CT - All could be completed vithin three years.

FE - 15 - 25 percent. - 39 - PORTS: Anpendix 'x Page 4

97. The "Reconstruction of exterior works in various ports" item is for rkAing goodl various bLjred kLwLe , rJe.IIUS1, Vet. 1,,I --i -fe -' locations nt, within the immediate area of the ports.

SP - As soon as contracts can be let.

CT - ?2 - 3 years.

FE - 10 - 15 percent.

Oargo-handlii., Equip:aenL a W4qui.r. utnts

98. The costs of these two items are not available. All could be supplied within tnree years - most cargo-nandiing equioment would be -off the snelf' t. Practically all expenditures would be in foreign exchange. CIVIL AVIATION AND AIRPORTS

99. Civil aviation activity in ilexico, which is regulated and controlled by the Department of Civil Aeronautics, a branch OL' the Secretariat of Communica- tions and Transports, has followed an upward trend in the past decade. Ihis Department, which issues permits and concessions for the operation of air routes and approves all schedules, has the general responsibility of stimulating air transport, of regulating existing competition and of ensuring air traffic safety within the country. A separate Department of the SCT is responsible for the approval of passenger fares and air freight rates. Miexico is a signa- tory to the Warsaw Convention (1929) and a member of the International Civil Aviation Organization (ICAO).

10w. i4exico's requirements for domestic air services are met by two large airlines - Aeronaves de Mexico, in which the Government has a majority interest, and Compania JMlexicana de Aviacion (Cjk) - and a large number of smaller carriers that operate scheduled or non-scheduled passenger, mail and express services; a few small carriers devoting attention primarily to air-cargo services. There is also a large number of small aircraft belonging to such Government agencies as Pemex, the Bank of M4exico, Public 1works, as well as tLose for agricultural fumigation and spraying, flying doctor, and aerial photography services and those of private owners, many of whom are U.S. tourists anc business firms. International services are provided by the two main M4exican flag carriers and by some 15 foreign airlines which operate to, from or through Mexico. Aeronaves is a member of the International Air Transport Association (IAT,A) but CMA is not.

101. In addition to the 27 main airports which are owned and operated by the Federal Government, there are some 500 other landing strips and airfields some of which, such as the important one of Monterrey, are owned and operated b3y tile airline companies. The operation of the Federal airports results in a financial loss to Government. In 196?, for example, income from landing fees, aircraft parking, rents, car-parking, etc. fell short of expenditures by some Ps. 20 million mainly as a result of operations at the smaller airports. In line with the Mlission's general recommendations to increase the level of public sav;ing, it is recommended that steps be taken to close this gap.

102. Virtually all aviation radio and air navigation facilities and services in .Hexico are provided by Radio Aeronautica Mexicana, S.A. (RANISA), which is a private non-profit organization owned and supported by the main domestic and international airlines onerating in the countrv. fR.Ai-S has a Government - 41 -

concessior to orgarize, coordinatc and providce all thte services of air traffic control, meteorolog.y, aeronaitical tlIeco-rn3unications and radio aids to air naviqo.tion in the Republic. N4anr of its plans to iijarove .and expar]d these services have been frustrated because of its- financial difficulties cauEed by the irregular paysents of SOrie domestic companies, .,hicl-; ale tloe main contri, butors, as a consequence of' the ir own financial difficulties (see oelow). Also, since some of its plans are not of im,mediate interest to all operators, RAJ4SA's managenent finds it difficult to ebtain mavjority support from its Board for their implementation. It has beco'e clear that because of tiie losses of tlhe domestic airlines, the increasin,: cost anJ crjmolexity of eauipment needs and the need for coordinate facilities vith .ivexico's neighbors so as to produce standards uniform with those of' her neir hbors. the CGovrrn,ment innsit show a greater financial participation i-.RAMSA's and allied act.;vitles in order to overcome the oresent seriouis deficiRncv in navi-ational and air t,raffc -nnr.rol aids.

103. ifeteorological services are prlov-ide6 aby several "Jvern;,.ent arid private ager.flespq pi rd-jc so t.he ni .4i-in T.io f.uhr, ri .ve]. , 4 n rO rrnrf-i ind-ep3ejonl'r.ior to satisfy tneir oijn needs wit1h l.ittle cooier&tion betweer, them. Pla-ns are irn existenci, orir i-jl e ±.leW~ li hrent of n uniPi let- 1d servi.ce ffor- i ti' 1 aviation. In the mi5siori'c opinion tnis is a logical and necessary step which it recorq,.qentn should be taken an a s o l

10N. he-+abl_e below sIi n u-.e te- I f vil -tv.^tl;Jn Ii) lico e.veV a number of vears included all domentic :and inr ernatioral airline services, scheduled- ard non-schteI du LeUId, of £"UiLn UI -oL 1J. _LZrILI -lsgtL, Iy

flnr .r "JJ inA .R, T--,r . r,', I , 1i: dU- (I 2

Pas5en-,ers Passenger Freighit and Carrioci Kms. J'Tail Year ( tuO) (D lli'T (ons 1O0o) 1946 707 11 1J1210U.U[1±L 48 1956 1,51 1.51 52 157 1 ,66,3 1.76 146 ly58 1,668 1.81 b5 I1 nrf N5>X>s. )(7I fUU Ln 1.92 45 1960 1,760 2.20 45 i961 1,737 2.54 41 1962/ 1,750 2.70 hO

T.'.-. sior _st " .at 'N

Source: -CT, Sermoria 1960-61 for 1956-61; Anuario L,eta2istica for 1946 and 1951. - 42 -

105. These figures exclude the large amount of Government agency, private and business aviation activity which make an invaluable contribution in terms of service to isolated areas, agriculture, commerce, administration, public service and emergency operations.

106. The mission has no satisfactory breakdown of the total commercial nassenger movements as between national and international flights by Mexican and foreign carriers. The -iission was given to understand that, because a sect.ion of the "TLaw of StAtistifcs" prohihits diselos.i,re of information rr!lating to the activities of any one particular company, Mexico does not provide sufficient and satisfactory statistical information to T(I0 as is required, The mission believes that since tbiis is out of step with the practice of most other -mem.b-ntS of tFhat+ o-rgnni 7nti on it shoule-ild 'ha -remediednl rnmarei nallr

107. From the evidence available, ho ever, it is clear that the strongest growth sector is the international tourist traffic business. The total number of passengers arriving andA leaving exico Cty-. airport, for exahple on international flights has increased from some 330,000 in 1955 to 640,000 in 1961. Ullhlile maost 04f 4these move..ents took p3lace on foreign fPlag aircr-aft, - cr companies made large investments between 1956-60 for the purchase of aircraft, engine spares,tools -'d hLupr,gentanr ot[her 'facilities ''nd in orler lo capture part of thiis growing traffic, inter alia.

TlC2IP-'EUT INV33T ENITS BY ALT. itXIC0'S AIRLINES (miuioos of pesos)

Gross Depreciation Net Year Investment and Reserves Investment

19>6 262 (121) 141 1957 490 (164) 326 1Li/,58 479 /(i83) !On 296 1959 609 (210) 399 1960 771 (291) 48o

TOTAL ?6ii (979) 1642

108. Despite these large investments, however, the financial position of all Mexican aviation companies has deteriorated. For the years 1956 to 1960 kthe latest for which the ,iission has full information) their total expenditures (inc. depreciation) exceeded total incomes by Ps. 273 rnillion, whereas over the proceeding five years there has been a net surplus of Ps. 57 million. The deficits have risen because of their failure in recent years to increase revenues from the number of passengers carried, passenger-kilometers flown, and tons of air freight shipped as fast as costs have risen, viz.: TOTAL INCOiIE & £iPTNDITURL3I OF 'NXICANi AIR COMPAlIES (millions of p,_sos)

Year Income Expenditures

1956 54L 191 1958 657 732 1960 803 9L1 1962 n.a. n.a.

Source: SCT, IMiemoria 1960-61

The Tnves:t nent Pro rrnm.

109. This ission was not equinped to carry out an exhaustive aTnalysir of i4exican airline operations, such as that made for the railways. The subject of airlinp nonincs ise a hiahly snpninlizid fieldr and, sincr-', therer is no provision for their activities in the Secretaria de la Presi .cic program (1962-65), only a broad nictuire was soughit so as to put the airport ancillary investments proposed into perspective. However, in view of the 1 seriouprese,acn+ fir.anci ,1 poiine of4 then lnes-In 4v .dn +heir, p.,.eo4 < nrsslblgovi burden on public funds, it appears to the -iAssion that there is a need for' - 4-- _ -P 4~_-Inn v,., -4 - - - -4- - -4 P--r A- I -4 1-. a group of independent experts. This we recommend,

110. The airport investments planned in the 1962-65 program are for the genera: Jimpro-vem,ent of airfield and terminal facilities and the prouvi-nIu of more and better navigational and air traffic control aids, For example, since there is no alteraLtive ladUiLLg suite in riMexico for large jet aira;f-tL uldrstLu vIexicoC CLiy airport be closed because of bad weather or visibility such aircraft have eitPar to return to San Antonio in Texas or over-fly to Guatemala City. It is proposed, therefore, to lengthen and strengthen the runways at Acapulco and to provide tne additional aids and equipment necessary to handle these large aircraft. In addition to this necessary safety alternative there is the possibility of direct jetv L tourist_ _ lllgflgf-2 _t 1 _ fromf- - theI 1- - U.O.11 - to1 - Acapulc,- - . whlUc 1- cannoT---.__ I taKeI -1 - placeI - at presenm_ _^

111. The radio and other aids to civil a-vation wh'ich are to be providecL at e airports in the program should improve the safety and operations of the growiTg air Plra±±.Lc - uomIestc cUlU foreign, civil anu Iral±uary - wlhiich uses either lMexican airspace or the Mexican navigational and communications system.

112. Therefore, although the inission has not examined in detail each and every project in the program, it considers that Ps. 217 million total planned expenditures for this sub-sector anpear a reasonable order of magnitude to make good some of the undoubted deficiencies that exist. The fnission, therefore, recommends that a figure of this amount, which is only some 2.5 percent of its total recommended investment in transportation, should be included in the public investment sector.