World Bank Document

Document of The World Bank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 3026d-ME Public Disclosure Authorized STAFF APPRAISAL REPORT MEXICO SECOND MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT Public Disclosure Authorized October 7, 1980 Public Disclosure Authorized Water Supply and Sewerage Division Latin America and Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance or their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Peso US$1 = Mex$22.8 (June 1980) MEASURES 1 mm = millimiter = 0.04 inches 1 cm = centimeter = 0.39 inches 1 m = meter = 3.28 feet 1 km = kilometer = 0.62 miles 1 1 = liter = 0.26 US gallons 3 1 m = cubic meter = 264 US gallons 1 m /sec = cubic meter = 22.82 MGD = per second million US gallons per day ABBREVIATIONS AND ACRONYMS AWS companies = Autonomous Municipal or State Water Supply and Sewerage companies BANOBRAS = National Bank for Public Works (Banco Nacional de Obras y Servicios Publicos S.A.) COPLAMAR = Committee for Coordination for Depressed Areas (Comite de Coordinacion y Planeacion para Zonas Marginadas) CUC = CoordinationAgreementsbetweenFederal and State Governments (Convenios Unicos de Coordinacion) DGC = Directorate for Construction of Water Supply and Sewerage Systems (Direccion General de Construccion-SAHOP) FIFAPA = Investment Fund for Water Supply and Sewerage Works (Fondo de Inversiones Financieras para Agua Potable y Alcantarillado) FOR OFFICIALUSE ONLY ICB = International Competitive Bidding IRR = Incremental Rate of Return JFMM = Federal Boards of Public Works (Juntas Federales de Mejoras Materiales) PNDU = National Plan for Urban Development (Plan Nacional de Desarrollo Urbano) PNH = National Hydraulic Plan (Plan Nacional Hidraulico) SAHOP = Secretariat of Human Settlements and Public Works (Secretaria de Asentamientos Humanos y Obras Publicas) SARH = Secretariat of Agriculture and Hydraulic Resources (Secretaria de Agricultura y Recursos Hidraulicos) SCF = Financial Coordinating Unit-Directorate of Construction of Water and Sewerage Systems (SAHOP) SFC = Financial Coordinating Unit (Subdireccion de Coordinacion Financiera-DGC) SHCP = Secretariat of Finances (Secretaria de Hacienda y Credito Publico) SPP = Secretariat of Programming and Budgeting (Secretaria de Programacion y Presupuesto) UNDP United Nations Development Programme VAT = Value Added Tax FISCAL YEAR January 1 - December 31 This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. MEXICO STAFF APPRAISAL REPORT SECOND MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT TABLE OF CONTENTS Page No. I. INTRODUCTION ........................................ 1 II. THE SECTOR ........................................... 2 Population ........................................... 2 Water Resources ............................. 2 Health Situation ............................... ... 3 National Planning .............................. 3 Sector Organization .................... 3 Service Levels and Quality ........................... 5 Past Sector Investments .............................. 7 Sector Objectives and Programs ............... 7 Manpower Aspects .............................. 8 Review of Previous Bank Loans ........................ 8 III. THE BORROWER AND EXECUTING AGENCY .................... 10 Introduction ......... ..................... 10 The Borrower (BANOBRAS) .............................. 10 FIFAPA Trust Fund . .............................. 10 The Executing Agency (SAHOP)......................... 11 IV. THE BENEFICIARIES .12 Organization .12 Accounting .13 Audit .13 Tariffs .14 V. POPULATION, SERVICE AND DEMAND IN THE PROJECT CITIES *- 14 General ........................................ 14 Water Resources ...................................... 16 Existing Water Supply and Sewerage Systems ........... 16 Population Served and Service Levels ..... ............16 Water Production and Consumption ...... ...............17 Population and Demand Projections .................... 20 This report is based on the findings of an appraisal mission which visited Mexico from March 10 to 28, 1980. The mission was comprised by Messrs. G. Yepes, Engineer; J. Culagovski, Economist; and L. Pereira, Financial Analyst. TABLE OF CONTENTS (Continued) Page No, VI. THE PROJECT ..... 20 Introduction ,... 21 Project Objectives .... 21 Priority Criteria ............................ 21 Service Standards ,...,.,...... 22 Status of Design ..... .... 22 Project Description .. 22 Cost Estimates .................. ,. .. 23 Project Financing ................. 24 Implementation ................... '26 Procurement ........... ,,., . 26 Disbursement ................ ,., 28 Environmental Aspects ....................... ,.,.,.,. 28 VII. FINANCIAL ASPECTS ..................... 29 BANOBRAS Financial Performance . .29 Subborrowers Financial Performance . .29 Financing Plan ................ 31 Subloan Agreements . .35 Tariff Structures ................. ,. 37 Future Finances of Beneficiary Cities . .38 Reporting Requirements . .38 VIII. ECONOMIC AND SOCIAL ANALYSIS .38 Introduction .38 Incremental Rates of Return and Marginal Costs .39 Project Sensitivity .40 Least-Cost Solution .40 Population Benefitted and Urban Poverty Impact .41 Affordability of Project Services by the Urban Poor... 41 Project Risks ............ 44 IX. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS . 44 LIST OF ANNEXES 1. Description of Existing Facilities 2. Proposed Works and Project Costs 3. Organization Chart of SAHOP 4. Organization Chart of D.G.C. 5. Project Costs 6. Consolidated Financial Statements of BANOBRAS 7. Financial Statements of FIFAPA 8. Summary of Assumptions Used in Financial Projections TABLE OF CONTENTS (Continued) 9. Financial Projections of Appraisal Cities 10. Projected Average Water and Sewerage Tariffs and Revenue Covenant Calculations 11. Monitoring Indicators 12. Outline Terms of Reference for Tariff Study 13. Incremental Rate of Return (IRR) and Long Run Average Incremental Cost (AIC) Calculations 14. Selected Documents and Data Available in Project Files LIST OF TABLES 2.1 Water and Sewerage Service Levels in Mexico 5.1 Main Characteristics of Water and Sewerage Services in Appraised Cities 5.2 Water Consumption Distribution (metered use) 5.3 Population and Demand Projections 6.1 Summary of Project Costs 6.2 Estimated Schedule of Loan Disbursements 7.1 FIFAPA-Cash Flow Statement (1980-1984) 7.2 Appraised Companies Balance Sheet as of December 31, 1979 and Income Statement for 1979 7.3 Appraised Companies Financing Plan (1980-1984) 7.4 Project Financing Plan 1980-1984 8.1 Incremental Rates of Return 8.2 Incremental Population Served 1979-1984 8.3 Affordability of Minimum Consumption LIST OF MAPS No.15092Location of appraised Cities included in the Project. MEXICO SECOND MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 The Government of Mexico has requested the continuation of Bank financial assistance for the expansion and improvement of water supply and sewerage systems in medium-size cities. The project was prepared by the Secretariat of Human Settlements and Public Works (SAHOP) with Bank assistance. The total cost of the project is estimated at US$297 million equivalent, and a Bank loan of US$125 million is recommended to finance the foreign exchange component. The Borrower will be the National Bank for Public Works (BANOBRAS), and the Executing Agency, will be SAHOP. The Beneficiaries will be state or municipality-owned water supply and sewerage companies. The works to be financed are scheduled for construction and completion during the four year period 1980-84. 1.02 The following medium-size cities are expected to benefit from the project (see map No. 15092): City State 1979 Proposed Works Population 1. Monclova Coahuila 254,300 Sewerage 2. Nogales Sonora 115,100 Water 3. Tepic Nayarit 121,400 Water & Sewerage 4. Toluca Mexico 240,000 Water & Sewerage 5. Cd.Juarez Chihuahua 671,500 Water & Sewerage 6. Matamoros Tamaulipas 214,500 Water & Sewerage 7. Queretaro Queretaro 315,000 Water & Sewerage SAHOP had prepared feasibility studies for the first four cities by the time of appraisal; this report summarizes the conclusion of these studies. Subsequently SAHOP liubmitted satisfactory feasibility studies covering the last three cities- . SAHOP is preparing additional feasibility studies for two or three more cities accounting for the balance of the project and would be submitted to the Bank not later than June 30, 1981. 1.03 In addition to reviewing the four subprojects mentioned above, the appraisal mission focused on strengthening the capacity of BANOBRAS and SAHOP. Particular attention was given to SAHOP's project preparation, supervision, and technical assistance responsibilities (para. 2.23, 3.13 and 6.15). 1! Feasibility studies for subprojects comprising 71% of project costs available in Project Files; general information and project description are given in Annexes 1, 2 and 5. -2- II. THE SECTOR-/ Population 2.01 The mid-1979 population of Mexico was estimated at 67.9 million inhabitants, of which about 63% were urban and 37% rural (communities with less than 2,500 inhabitants). The total population is growing at an estimated rate of 2.9% annually. This growth rate has been declining

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