Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No.: 19456

IMPLEMENTATION COMPLETION REPORT

THE UNITED MEXICAN STATES

FIRST URBAN TRANSPORT PROJECT

(LOAN 2824-ME)

June 28, 1999

Finance, Private Sector and Infrastructure Sector Management UnitMexico Country Management UnitLatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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IMPLEMENTATION CO:MPLETION REPORTMEXICO

FIRST URBAN TRANSPORT PROJECTLOAN 2824-ME

CURRENCY EQUIVALENTS

Currency Unit =Mexican Peso

US$1 = 1.612 average of 1986US$1 = 1.378 average of 1987US$1 = 2.273 average of 1988US$1 = 2.461 average of 1989US$1 = 2.813 average of 1990US$1 = 3.018 average of 1991US$1 = 3.095 average of 1992US$1 = 3.116 average of 1993US$1 = 3.375 average of 1994US$1 = 6.419 average of 1995US$1 = 7.609 average of 1996US$1 = 7.820 average of 1997US$1 = 9.500 average of 1998

FISCAL YEAR

January 1 to December 31

WEIGHTS AND MEASURES

1 kilometer (km) = 0.62 miles (mi)1 liter (1) = 0.26 gallons (gal)

1 hectare (ha) = 2.47 acres (ac)1 metric ton (Mton) = 2205 pounds (lbs)

Vice President: Shahid Javed BurkiCountry Management Director: Olivier Lafourcade

Sector Management Director: Danny LeipzigerTask Manager: Guillermo Ruan

FOR OFFICLIL USE ONLYGLOSSARY OF ACRONYMS AND ABBREVIATIONS

AADT Average Annual Daily TrafficACF Average Cost of Funds (Federal Government Borrowings)

(Costo Porcentual Promedio, CPP)BANOBRAS National Bank of Public Works and Services

(Banco Nacional de Obras y Servicios Puiblicos, S.N.C.)COMETRAVI Transport and Roads Metropolitan Commission

(Comisi6n Metropolitana de Transporte y Vialidad)COTREM State of Mexico Transport Commission

(Comisi6n del Transporte del Estado de Mexico)CUD Comprehensive Development Agreement (State/Federal)

(Convenio Unico de Desarrollo)DDF Department of the Federal District

(Departamento del Distrito Federal)FRR Financial Rate of ReturnGEM Government of the State of Mexico

(Gobierno del Estado de Mexico)GIRA General Interest Rate AgreementGOM Government of Mexico (Federal)ICB International Competitive BiddingJC Junta Caminos (Road Maintenance Division, State of Mexico)LCB Local Competitive BiddingLRT Light Rail TransitLVC La Venta - Chamapa Toll RoadMAESTRA Urban Transport Enterprise Support Model

(Modelo de Apoyo a las Empresas de Transporte Urbano de Pasajeros)MSCP Medium Sized Cities Urban Transport ProjectNPV Net Present ValuePEMEX Mexican Petroleum Company

(Petroleos Mexicanos)PPTU First Urban Transport Project

(Primer Proyecto de Transporte Urbano)RAMA Air Monitors Automatic System

(Red Automatica de Monitores del Aire)SCTEM Communications and Transport Secretariat of the State of Mexico

(Secretaria de Comunicaciones y Transportes del Estado de Mexico)SDUOP Secretariat of Urban Development and Public Works

(Secretaria de Desarrollo Urbano y Obras Publicas)SECODAM Controller's and Administrative Development Secretariat

(Secretaria de la Contraloria y Desarrollo Administrativo)SEDESOL Secretariat of Social Development (fonnerly SEDUE)

(Secretaria de Desarrollo Social)SEDUE Secretariat of Development and Ecology

(Secretaria de Desarrollo Urbano y Ecologia)

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

SHCP Secretariat of Finance and Public Credit(Secretaria de Hacienda y Cr6dito Publico)

SIAM Maintenance Management Integral System(Sistema Integral de Administracion del Mantenimiento)

SOPT Secretariat of Public Works and Transport (State of Nuevo Leon)(Secretaria de Obras Puiblicas y Transporte)

SofNL State of Nuevo LeonSofM State of MexicoSPP Secretariat of Programming and Budget

(Secretaria de Programaci6n y Presupuesto)SCT Secretariat of Communicat:ions and Transport

(Secretaria de Comunicaciones y Transportes)STT State-owned Bus Companies (State of Mexico)

(Sistema de Transporte Troncal)TA T echnical AssistanceTSM Traffic Systems ManagementVCT Valle Cuatitlan-Texcoco (State of Mexico)ZMCM City of Mexico

(Zona Metropolitana del V alle de Mexico)

TABLE OF CONTENTS

PREFACE ............................................................ i

EVALUATION SUMMARY ....................................................... iIntroduction ...................................................... iiProject Objectives .......................................................iiImplementation Experience and Results ...................................................... iiSummary of Findings, Future Operation, and Key Lessons Learned ............v

PART I: IMPLEMENTATION ASSESSMENT ..................................................1A. Project Objectives ...................................................... lIB. Scope of Project and Project Development ..............................................IC. Achievement of Objectives ....................................................... 4D. Major Factors Affecting the Project ....................................................... 8E. Project Sustainability ....................................................... 9F. Bank Performance ...................................................... 10G. Borrower Performance ...................................................... 1 IH. Assessment of Outcome ...................................................... 111. Future Operation ...................................................... 12J. Key Lessons Learned ...................................................... 12

PART II: STATISTICAL TABLES ..................................................... 15Table 1. Summary of Assessment ..................................................... 15Table 2: Related Bank Loans/Credits ..................................................... 16Table 3: Project Timetable ..................................................... 17Table 4: Loan Disbursements ..................................................... 18Table 5: Key Indicators for Project Operation ............................................. 18Table 6: Studies for the Project ..................................................... 19Table 7: Key Indicators for Financial Position ............................................ 19Table 8A: Project Costs ..................................................... 20Table 8B: Project Financing ..................................................... 22Table 9A: Economic Costs and Benefits ..................................................... 22Table 9B: Financial Results ..................................................... 23Table 10: Status of Legal Covenants ..................................................... 24Table 11: Project Implementation Program ................................................... 27Table 12: Bank Resources: Staff Inputs ..................................................... 29Table 13: Bank Resources: Missions ..................................................... 30

APPENDICES ...................................................... 32A. Mission's Aide Memoire ...................................................... 33B. Borrower's Contribution to the ICR ...................................................... 35C. Maps: IBRD No. 20367R and 20368R ..................................................... 46

IMPLEMENTATION COMPLETION REPORT

MEXICO

FIRST URBAN TRANSPORT PROJECT

LOAN 2824-ME

PREFACE

This is the Implementation Completion Report (ICR) for the First UrbanTransport Project in Mexico, for which Loan 2824-ME in the amount of US$125 millionequivalent was approved on May 28, 1987 and made effective on February 11, 1988. In1992, US$34 million of the loan were cancelled when the Nuevo Le6n Component wasdropped from the project. The Loan was closed on June 30, 1998. Final disbursementtook place on October 30, 1998 at which time a balance of US$0.5 million was cancelled.

The ICR was prepared by John Cracknell (Consultant), Mahendra Lal(Consultant), and Francisco Wulff (Consultant) under the supervision of the TaskManager Guillermo Ruan of the Finance, Private Sector and Infrastructure Department ofthe Latin America and the Caribbean Region (LCSFP) and reviewed by Maria VictoriaLister, Quality Assurance Officer (LCSFP); Richard Clifford, Sector Leader (LCSFP);and Jeffrey Gutman, Lead Specialist (LCSFP). The borrower and cofinanciers providedcomments that are included as appendices to the ICR.

Preparation of this ICR was initiated during the Bank's supervision/completionmission, in May 1998. It is based on data supplied by the Borrower and on projectreports and material in the project files. The Borrower also contributed to preparation ofthe ICR by providing views reflected in the report, and by commenting on the draft ICR.A summary of the Borrower's contribution is included in Appendix B to this ICR.

ii

FIRST URBAN TRANSPORT PROJECT

Loan 2824-ME

MEXICO

EVALUATION SUMMARY

Introduction.

1. The Project was the first urban transport project to be supported by the Bank inMexico. The Project was identified in 1985, appraised in 1986, approved by the Bank in1987, and became effective in February 1988 (Table 3). The cost of the Project wasestimated at US$294.9 million with a Bank loan of US$125 million equivalent. TheProject took eleven years to implement and the final costs were US$144.66 million withUS$90.46 million disbursed from the Bank loan'.

Project Objectives.

2. The rationale of the Project was to assist the development of traffic and transportoperations, management and planning in selected major urban areas in Mexico. TheLoan Agreement stated the Project objectives as (i) to improve the quality, accessibility,and effectiveness of transport; (ii) to rationalize tariff policies, improve the financial andeconomic viability and sustainability of transport investments and encourage privatesector participation, (iii) to preserve and maintain (transport) infrastructure investments,and (iv) to strengthen the capabilities of institutions engaged in urban transport.

3. The Project objectives were to be achieved through the implementation of fivecomponents: (i) Corridor improvements, (ii) Public Transport, (iii) Road Maintenance,(iv) Traffic Systems Management (TSM), and (v) Institutional Development. The lattercomponent aimed to assist project management and supervision, strengthening agenciesin the sector systematic transport planning and preparation of investment programs inurban areas in Mexico. Corridor, Public Transport, Maintenance and TSM componentswere included for (i) Zona Metropolitana del Valle de Mexico (ZMCM) under thejurisdiction of the State of Mexico (SofM), and (ii) Monterrey, State of Nuevo Leon(SofNL). The Institutional Development component was directed at the Banco Nacionalde Obras (BANOBRAS); Technical Assistance (TA) to local agencies was combinedwith the sectoral components.

Implementation Experience and Results.

4. Project implementation was delayed and took 10-11 years instead of the 7-8 yearsforeseen at Appraisal. The progress and content of the Project was greatly influenced byunforeseen events (such as the consequences of Hurricane Gilbert and the air pollutioncrisis in ZMCM), the economic downturn in Mexico and policy decisions by borrower

i During the period 1987-1998 the Mexican peso devalued from 1.4 to a dollar to 9.5 to a dollar.

iii

agencies (such as a decision to pursue the metro in Monterrey). It is a complexbackground extending over 11 years against which the Project must be judged. Therewere considerable changes in project scope, priorities and costs of individual Projectcomponents and changes in institutions, the major amongst which were:

a) re-scheduling of Project resources (US$ 11.6m Loan) to finance repairs totransport infrastructure in Monterrey brought about by Hurricane Gilbert;

b) cancellation of outstanding SofNL components (US$ 34.Om Loan) in 1992attributed by SofNL to the lack of counterpart funds; this lack of resourcesresulted from a change of transport priorities in the city by the decision topursue a high cost Light Rail Transit (LRT/metro);

c) cancellation of the lines of credit for buses (US$28.8m total) due to failure toimplement related bus route rationalization and tariff reform programs, theSofNI, withdrawal and existence of alternative bus financing sources;

d) reallocation of Project resources (US$38m) in 1990 to the Department of theFederal District (DDF) to implement measures to alleviate the crisis levels oftransport related air pollution;

e) liquidation of the SofM bus company (STT) and thus the abandonment of therelated bus maintenance prograrn;

f) changes in scope, types of wvorks and priorities on Corridors and forMaintenance arising as a consecquence of the long implementation period;

g) decentralization of traffic responsibilities to local governments which affectedthe imrplementation of TSM components;

h) changes in political administration which resulted in institutional changessuch as elimination of State of Mexico Transport Commission (COTREM)(Traffic division) and STT in SofM, the Project Implementation Unit (PIU) inSofNI. and Ruta 100 in DDF.

5. Additionally, the Project was implemented in a time of economic crisis in Mexicowith two effects: (i) shortage of counterpart funds at many stages in the Project butnotably in the early years of the Project when implementation was very slow and fewdisbursements were made and (ii) a drop in the value of the Project as the Peso devalued.The original Project cost of US$ 294 m (US$ 125m Loan) was reduced by the withdrawalof Monterrey (a cancellation of US$34 mn of the Loan) to an estimated US$214m;however, during Project implementation the Mexican Peso devalued from 1.38 P to IUS$ in 1987 to about 9.5 P to 1 US$ 1998 contributing to an effective drop in the totalProject cost to US$144.66 million.

6. As a result of the lengthy time scale and the events described in para 4, there werechanges in Project scope, not all components were implemented and not all objectiveswere achieved, notably those related to the TSM and Public Transport components.Nevertheless, the Project was the first urbEm transport project in Mexico and significantbenefits accrued to users of the transport system in SofM, from the Corridors and theMaintenance components, and in Monterrey from the initial Ring Road investments andthe Hurricane Gilbert remedial works. The DDF components, added in 1990, weresuccessfully implemented with beneficial results from reductions of bus emissions and an

iv

air quality monitoring system was established. Furthermore, from a very low level ofinitial experience, the TA and training under the Project assisted BANOBRAS to increaseits expertise and capabilities in urban transport. While further improvement is stillnecessary, the gain is demonstrated in the successful co-operation between the Bank andBANOBRAS in developing integrated transport projects in Medium Sized Cities andnow, supervision of the on-going Bank project.

7. Financial impact of the Project is assessed as mixed. Although quantitative dataare not available, the Maintenance program is considered to have had an overall positiveimpact on SofM's transport expenditure since if road rehabilitation had been furtherdeferred, then full scale road reconstruction would have been necessary; furthermore, theestablishment of improved maintenance planning also assists the SofM to make mosteffective use of resources. Only one component, the La Venta Chamapa (LVC) TollRoad, involves direct cost-recovery from users. The LVC does not result in a satisfactoryFinancial Rate of Return (FRR) due to lower than estimated traffic demand andconstruction cost over-runs2 .

8. There is also little data from which to assess the economic impact of investments.However, on the basis of experience of other projects and some un-validated data fromthe SofM, it is assessed that the Maintenance and Corridor components resulted inimproved vehicle speeds which, together with improved road surfaces, reduced vehicleoperating costs and gave economic benefits. Due to low traffic demand, it appears thatthe LVC has not realized its estimated economic benefits. The impacts of the DDFcomponents (Ruta 100 engines and equipment for the Air Monitors Automatic System --RAMA) are judged to be positive.

9. The Bank showed flexibility and responsiveness in dealing with changingcircumstances throughout the Project, in particular in meeting the requests from theGovernment of Mexico (GOM) to use Project funds to alleviate the effects of twoemergencies: (i) damaged transport infrastructure in Monterrey following HurricaneGilbert, and (ii) alleviation of the transport related air pollution crisis in ZMCM. Duringlater years of the Project, implementation of physical measures was emphasized andsupervision efforts were directed to speeding up previous slow disbursement performancebut more may have been possible to stimulate greater action in the traffic managementand public transport reform programs. Considerable effort was also devoted to thedevelopment of a Medium Sized Cities Urban Transport Project (MSCP); this wassuccessfully accomplished and the framework for the development of urban transportsystems and institutions in urban areas in Mexico has been improved. Overall Bankperformance is rated as satisfactory.

10. Borrower performance was uneven. BANOBRAS performed administrativeaspects well (procurement supervision, disbursements, preparation of quarterly reportsetc.) but at the outset of the Project, the agency lacked technical expertise to deal with

2 It appears possible that the financial return could be improved through (i) levying a more realistic toll to balance andoptimize demand and revenue and (ii) improvement of the vehicular access to/from LVC's catchment area withinSofM.

v

policy and technical issues to maintain the proposed pace of implementation. During theProject, BANOBBAS benefited from exposure to the sector through Bank Supervisionmissions and, to some extent, from TA and technical performance has improved. InSofM, the Traffic Division (COTREM) was hampered by the economic downturn inMexico leading to paucity of counterpart ftnds, frequent changes in administration andlack of expertise in traffic matters and, in the end, although studies and designs werecompleted, little implementation was achieved in the TSM or Public Transportcomponents. The Maintenance Division of SofM, after a slow start, performed well andbenefited from the TA under the Project to strengthen their expertise and establish aplanning system. Overall Borrower performance is rated as satisfactory.

Summary of Findings, Future Operation, and Key Lessons Learned.

11. The outcome of the Project was mixed. Cancellation of some components(notably bus lines of credit) meant that public transport objectives were not achieved, andnot all remaining original components were implemented in the form envisaged atAppraisal. There was a notable lack of traffic management actions although someinterventions were subsumed into Corridor components. Implementation was slowerthan forecast. Nevertheless, the Corridor and Maintenance-Rehabilitation works hadpositive impacts ina economic terms, in financial terms (through improved planning ofresource allocation to maintenance) and in raising awareness of cost-effective measures,The LVC appears not to have achieved either its economic or financial returns but this isattributed to unrealistic tolls and poor local road connections rather than a poor schemeconcept. While some components were cancelled by Borrower agencies, others weresubstituted and these, at the time of their inclusion, had positive impacts. The Project hada positive impact on urban transport planning and project development (i) generally inMexico through the approach to urban transport, now demonstrated by the on-goingMSCP Project, and (ii) through promotion of the case for integrated transport in ZMCMthrough support to the Transport and Roads Metropolitan Commission (COMETRAVI --Comisi6n Metropolitana de Transporte y Vialidad) and its successors. Thus, although theProject did not achieve all objectives, it was an initial project in the sector and must beviewed against th,e background of a long time-scale and changing political events,economic conditions and institutional changes and its outcome is regarded as generallypositive. Thus, a satisfactory rating has been given. The lessons to be learned for futureprojects are given in the following paragraphs.

12. Political Commitment and Changing Priorities - it is essential for implementationof traffic and transport schemes and policies to secure political commitment to minimizerisks of cancellation of components. There is no easy way for which to plan for changingpolitical priorities, particularly in a Project with a life of over 11 years. However, thelessons learned are (i) projects should be "shorter" in planned duration even if this meansa project of reduced scale; shorter periods would safeguard, to some extent, againstchanging priorities and (ii) there is a need to improve consultation procedures withdecision makers and key stakeholders. For further work in the sector, the agencyresponsible for the project should have the capacity to play an effective leadership role inthe pursuit of policy reforms.

vi

13. Institutional Arrangements for Implementation - the fundamental requirement forthe successful implementation of an urban traffic and transport program is the existence(or creation) of a strong, professional Traffic Management Unit (TMU) or equivalent.Planning and implementation of traffic schemes and policies involves many public andprivate agencies in the sector. Unless a strong TMU exists (or is created) with adequatepowers and financing, successful implementation of TSM components will be at risk. InSofM, the Project foresaw this issue and provided TA to COTREM; however, the agencyproved to have insufficient experience in the area and had no budgetary powers to forcethrough implementation. The lessons learned are that Bank urban transport lending inMexico should be even more strongly focussed on institutional strengthening and that theagency selected for planning should have a clear mandate to secure implementation.

14. Project Design - the design of the Project was not unduly complex and yetsignificant elements were not implemented, notably the TSM and Public TransportComponents; although preparation studies were completed for both components butimplementation did not follow. The lessons learned are:

a) Public Transport - Lines of Credit. The component was not implemented as(i) it was linked to bus route rationalization and reform of public transportorganization (such as tariff levels) which, although studied, were notimplemented and (ii) the arrangements to actualize the lines of credit outlinedat Appraisal were reasonable proposals but did not prove acceptable inpractice (even though operators had been consulted). The viability of buslines of credit requires extensive research into the structure of the local busservice supply industry, its sources of alternative finance and integration, on astaged basis, new buses with the existing bus fleet. The lesson learned is thatit is necessary to take the development of a line of credit to a "final scheme"stage at Appraisal;

b) TSM - a strong, professional TMU is essential for the realization of a trafficmanagement program; the lesson to be learned has been described in para I3.and is further endorsed.

15. Approach to Detailed Design at Appraisal It is standard practice at Appraisal fordetailed design to be completed for a significant proportion of any urban transportproject. This procedure was followed and a significant proportion-by-cost of the Projectwas available at detailed design level. However, the designs were for straightforwardroad components. The components which, although of lower cost, require intensivedesign effort (such as the TSM schemes) were not designed. These were planned anddesigned during the early years of the Project but not implemented following changes oftraffic responsibility from State to municipalities and as the focus of attention (byBANOBRAS, SofM and the Bank) in later years of the Project concentrated on theimplementation of physical investments. Thus, the TSM objectives were largely lost.The lessons learned are (i) that detailed design of urban transport project at Appraisalshould not be assessed only on a cost basis but should include a representative sample of

vii

all type of measures proposed for the Project and (ii) even if there is a change in systemresponsibilities, the co-ordination agency should seek consensus with the new authorities.

16. Supervision by BANOBRAS and the Bank - during later years of the Project,there was an emphasis on implementation of physical measures and great efforts weremade to speed up previous slow disbursernent performance. As a consequence, thepolicy aspects of the Project (such as possible Public Transport reform in terms of routes,tariffs, etc) and procedural aspects (such as data for monitoring and ex-post evaluations)tended to be overlooked. The lessons learned are that (i) for projects with very longimplementation peiiods, at least one comprehensive review of the Project in relation to itsobjectives is required after, say, 4 years and a detailed action plan is necessary to recoverany overlooked components or policies and (ii) dialogue between the Bank and the co-ordination agency must be continued within the framework of the Appraisal agreementsand activities should not concentrate on physical implementation alone.

17. LVC - the largest single investment does not appear to result in positive financialor economic returns. The increase in constiuction cost was unavoidable but the dangersigns relating to low demand were recognized in mid Project. Bank Supervision missionsrecommended testing alternative tolls to arrive at the optimum balance between toll anddemand. It does not appear that this advice was taken. The lesson learned is that in caseswhere a component has been completed bult its benefits are in doubt, the Bank shouldexercise all possible influence on the borrower to seek remedial actions - particularly inthe present case where such actions appear viable.

IMPLEMENTATION COMPLETION REPORT

MEXICO

FIRST URBAN TRANSPORT PROJECT

Loan 2824-ME

Part I: Implementation Assessment

A. Project Objectives

1. The rationale of the Project was to assist the development of traffic andtransport operations, management and planning in selected major urban areas in Mexico.The specific Project objectives (Loan Agreement Schedule 2) were to:

(a) improve the quality, accessibility, and effectiveness of transport;(b) rationalize tariff policies, improve the financial and economic viability and

sustainability of transport investments, and encourage private sectorparticipation;

(c) preserve and maintain (transport) infrastructure investments;(d) at local and national levels, to strengthen the capabilities of institutions engaged

in urban transport.

B. Scope of the Project and Project Development

2. The Project was identified in 1985, appraised in 1986, approved by the Bankin 1987, and became effective in February 1988 (Table 3). The cost of the Project wasestimated at US$294.9 million at Appraisal with a Bank loan of US$125 millionequivalent. The Project took eleven years to implement and the final costs wereUS$144.66 million with US$90.46 million disbursed from the Bank loan.

3. The Project objectives were to be realized by the implementation of fivecomponents:

(a) Corridor Improvements -road construction (including one toll expressway),road widening, busways, intersection improvements, "missing links" andsimilar (36% of costs);

(b) Public Transport Improvements - studies and TA for bus system management,tariffs, public transport plans and bus maintenance facilities (includingequipment); a line of credit for private sector to procure buses was included(37% costs);

(c) Road Maintenance -deferred maintenance investments and TA for developmentmaintenance management programs (21% costs);

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(d) Traffic System Management (TSM) -TA for TSM studies and implementationof resultant traffic management measures to optimize use of existing trafficfacilities (5% costs);

(e) Institutional Development Prograr - TA to (i) assist Project management andsupervision, (ii) strengthen local agencies in the sector and (ii) commencesystematic urban transport planning and preparation of investment programs incities in Mexico (1% of costs).

4. The Corridor, Public Transport, Maintenance and TSM components (paras3(a)-(d)) were included in the Project for (i) the part of the ZMCM under the jurisdictionof the State of Mexico (SofM) and (ii) Monterrey, State of Nuevo Leon (SofNL). TheInstitutional Development component was directed at BANOBRAS; TA to local agencieswas combined with the sub-sector components.

5. The Project period was extendecl from an estimated 7 to 8 years at Appraisalto 11 years (the original closing date of June 1995 was extended to June 1998) (Table 3).During this period, the content and progress of the Project was greatly influenced byunforeseen events (such as the consequences of Hurricane Gilbert and the air pollutioncrisis in ZMCM), the economic downturn in Mexico and decisions by borrower agencies.It is a complex background extending over 11 years against which the Project must bejudged. There were considerable changes in project scope, priorities and costs ofindividual Project components and changes in institutions, the major amongst whichwere:

(a) in late 1988, road infrastructure in. Monterrey was severely damaged by theeffects of F-lurricane Gilbert. The Bank agreed to a major re-scheduling of Projectresources (US$ 11.6m Loan) to finance repairs to transport infrastructure and tobring vital road links back into full operation in the shortest practicable time:

(b) in November 1992, the SofNL requested the cancellation of the project inMonterrey (US$ 34.Om Loan); this was agreed by the Bank. The reasons for thecancellation were attributed by the SofNL to the lack of counterpart funds.Although precise data are not available, this shortage of resources appears to haveresulted from the commitment of SofNL to the construction of the MonterreyLRT/metro (now in operation but operating at a considerable deficit);

(c) the lines of credit for buses were not pursued (US$28.8m Project cost). Thisarose from a combination of reasons: (i) the lines of credit were tied to realizationof bus route rationalization and tariff reform programs; while the studies werecompleted in SofM, the State lacked the conviction to implement the proposals;(ii) in SofNL, after protracted debate over the scope of the bus route studies andits integration with the then proposed. metro (para (b)), the studies were overtakenby the SofNL cancellation, (iii) bus operators were able to finance buses withsupplier credits at more favourable lerms than was likely from a Project line ofcredit, and (iv) bus operators were unwilling to embrace, without increased tariffs,the higher standards (and costs) of buses likely to be required by a line of creditunder the Project (e.g. insistence on imnproved emission standards);

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(d) in 1989, transport related air pollution had reached crisis point in the DDF. InFebruary 1990, at the request of GOM, the Bank agreed to reschedule US$ 38m(made possible by reallocation of some funds from the Monterrey Project andfrom the non-established bus lines of credit funds in both states) to assist inmeeting that crisis. The Project financed (i) the procurement of 1,200 "clean"engines for Ruta 100 buses, (ii) TA and equipment for RAMA (automatic airquality monitoring program) in DDF, and (iii) studies on vehicle emissions andlead-free gasoline production. While the RAMA equipment continues to functionvery efficiently, is audited each semester by the Environmental Protection Agency(EPA) of the USA and is well managed, Ruta 100 - the beneficiary of the engines- no longer exists as the company has since been liquidated;

(e) following the completion of the bus maintenance study and the definition of a busmaintenance equipment program in the SofM, the State bus company (STT) wasliquidated and thus the components were abandoned;

(f) the long Project implementation period gave rise, in SofM, to a need to re-appraise priorities for various reasons. Typical changes included (i) roadconditions had continued to deteriorate and Corridor and Maintenance works weremodified to meet the new priorities, (ii) some Appraisal proposals provedunrealistic following detailed analysis; in particular, the Rl Busway (US$22.4mproject cost) was cancelled as it relied on new road construction for continuityand for which costs were not included in the Project, bus re-routing which was notpursued and for a complete scheme, extension out of SofM jurisdiction into theDDF area; road rehabilitation was substituted, (iii) Av Central had deterioratedphysically since Appraisal and the works were redefined to deal with the newconditions and further to deal with the effects of the construction by DDF ofMetro Line 10 (along the line of Av Central); Project costs are given in Tables8A-1 and 8A-2;

(g) during the early 1990's, decentralization of local government responsibilities tookplace from states to municipalities. In the SofM, this meant that municipalitiesbecame responsible for traffic schemes; the Project proposals for TSM for localcentres such as Naucalpan, Ecatepec and Texcoco prepared under the Project byCOTREM (SofM) were not implemented although subsequently, some (notablyTexcoco) have been taken over by municipalities with their own resources;

(h) during Project implementation, there have been changes in politicaladministration e.g. three different administrations in Monterrey. These changesaffected the Project in terms of: (i) policy - for example, the decision to proceedwith the metro/LRT in Monterrey in preference to "cost-effective", Projectinvestments and (ii) institutions - for example, various institutions/agenciessupported by the Project have been eliminated (although sometimes absorbed intoother agencies) and these included COTREM and STT in SofM, the ProjectImplementation Unit (PIU) in SofNL and Ruta 100 in DDF;

(i) the Project was implemented in a time of economic crisis in Mexico. Two effectsare noted (i) shortage of counterpart funds at many stages in the Project butnotably in 1990/91 when implementation was very slow and few disbursementswere made (Table 4) and (ii) a drop in the value of the Project as the Pesodevalued. The original Project cost of US$ 294 m (US$ 125m Loan) was reduced

4

by the withdrawal of Monterrey (a cancellation of US$34 m Loan) to an estimatedUS$214m; however, during Project implementation the Mexican Peso devaluedfrom 1.378 P to 1 US$ in 1987 to about 9.5 P to 1 US$ 1998 contributing to aneffective drop in the total Project cost to US$144.66 million.

C. Achievement of Objectives

6. The SAR defined indicators against which to measure improvements intraffic performance, economic impacts ancd financial returns (where appropriate) forCorridors, Public Transport Maintenance ancd TSM components. However, the extensivechanges over the life of the Project in termns of location and type of schemes and theelimination of some components (para 5), rmeans that the SAR indicators are, in manycases, no longer valid. Although monitoring surveys were planned in 1991, they werenot executed nor followed up and changes of administration and consequent changes intechnical personnel in SofNL and SofM has meant that there has been no consistent,systematic data collection to enable quantified, ex-post evaluations to be made. Thus, theassessment of the achievement of objectives is based largely on qualitative assessments.

7. Corridors and TSM - the objective was to improve the quality of transport byimproving the efficiency of existing facilities and supplementing traffic capacity in keylocations. Investments comprised new road construction, extensions and widening ofexisting roads, somne traffic system improvements and road paving in a poor area on theperiphery of the cit:y.

8. The works undoubtedly had beneficial effects on traffic performance in termsof (i) improved travel speeds', (ii) increased accessibility to developing areas by theconstruction of new roads, (iii) improving bus and other access to the poor area of Chalcoand (iv) reduced vehicle operating costs (see also Maintenance below). However, theTSM program was not fully realized; the component originally comprised two parts: (i)TSM studies to clevelop cost-effective programs and (ii) implementation of thoseprograms. While a number of TSM studies and plans were completed, no specific TSMcomponents were implemented under the Project since (i) some TSM work (such as roadmarkings and sign:ing) was absorbed into the Corridors and (ii) traffic responsibilitieswere decentralized from states to municipalities and implementation did not take place.However, although not implemented under the Project, it appears that at least some of theschemes are now being taken up by the municipalities (the Texcoco one way systemwhich was delayed under the Project by the construction of the parallel Metro Line A bythe DDF).

9. The major single Corridor investment in SofM was the La Venta ChamapaToll Expressway (IVC) (Appraisal estimate of US$17.9m plus US$ 5 m sunk costs pluscontingencies). Thie aim of the scheme was to relieve the congested local roads in thewest of the ZMCM within the jurisdiction of the SofM. The scheme has not fulfilled the

' Although systematic clata are not available, the SofM authorities report "before" and "after" averagespeeds to be increased by 30% or more. However, the data are not "corrected" for such factors as variationin traffic flows.

5

Appraisal estimates in that the traffic demand is some 40% of that predicted (Table 9B)and consequently this, coupled with increased cost of the final scheme (total US$ 36.9m)has resulted in a lower than expected financial return; a negative Net Present Value(NPV) estimated (Table 9B). The increase in cost was due to (i) changes in design whichincluded a new bridge-access, (ii) construction problems in difficult terrain whichrequired significant design amendments and (iii) contract claims and other problems.The Bank did not disburse against the total cost but against Appraisal estimates. Lowerthan expected demand is attributed to (i) the high toll which was imposed at the outset(and is now US$ 3 for cars and US$ 9 for trucks for 1 lkms), (ii) the existence of otherroutes that provided service, and (iii) the poor quality of, and traffic congestion on, thelocal road access to/from the most likely catchment area for traffic within the SofM2.The situation is not atypical of toll roads in Mexico and it is understood that most SCT3

toll roads are also largely under-utilized. Given the low traffic flows on LVC, it seemslikely that the traffic relief to other roads, and thus the economic objectives, have notbeen achieved to date.

10. In Monterrey, prior to the withdrawal from the Project, Corridor works werecompleted on the Inner Ring Road. No data are available to assess the traffic impact ofthe components. The Ring Road is now substantially complete although some schemesproposed as grade separated intersections under the Project are still not completed in theirfinal form.

11. Maintenance - the objective of the investments was to conserve roadinfrastructure. The component was applied only in the SofM as a result of the Monterreycancellation. The SofM successfully implemented a program of deferred maintenance-rehabilitation. All works were carried out under locally bid contracts. The improvementof the road surface has assisted in the conservation of the SofM road infrastructure andshould have achieved reductions in vehicle operation costs on major road arteries. Theprogram included a Maintenance Study and SofM report that the MaintenanceManagement Integral System (SIAM -- Sistema Integral de Administraci6n delMantenimiento), developed by the study, is in use and is applied to establish maintenancepriorities on the main road network in the state. In principle, the component must beregarded as successful in "preserving transport infrastructure investments and reducevehicle operating costs".

12. In SofM, at Appraisal, Corridor and Maintenance works were scheduled onabout 130 kms of road at an average cost of about US$ 0.5m/km4. The Projectimplemented Corridor and Maintenance works on about 105 kms5 at an average cost ofUS$0.77 m/km. Thus, about 80% of the Corridor and Maintenance physical target wasachieved but at a greater than expected unit cost. The reduction in target and increase incost is attributed to a number of factors - delays in implementation resulted in continued

2 This was clearly recognized by the Bank team at Appraisal and the road, the Carr Naucalpan-Toluca, wasincluded for improvement under the Project; this was not implemented.3 The LVC is owned and managed by the SofM.4 Including contingencies divided pro-rate between components.Both totals are estimated and exclude the La Venta Chamapa Toll Road Expressway.

6

deterioration of road surface and thus works were more extensive than envisaged atAppraisal and some higher cost components were substituted for lower cost components(e.g. much needed new roads in Chalco were substituted for lower cost managementschemes in Texcoco).

13. Public Transport - the objective was to improve the supply and quality oftransport. The Public Transport components did not achieve the stated objectives ofrationalizing tariff policies, improving the financial and economic viability, sustaining(public) transport investments and encouraging private sector participation. This failingarose from (i) the cancellation of the bus lines of credit, (ii) the liquidation of the STT inSoiM (for which a Bus Maintenance Study had been successfully completed but whichdid not lead to investment) and (iii) the lack of implementation of any route restructuringor system re-organization proposals in SofM and (iv) the construction of Metro Line 10(which eliminated the case for the RI busway).

14. Additional Components - additional components were included in the Projectnamely: (i) engines for Ruta 100 buses in DDF, (ii) equipment/TA for the RAMA in theDDF and (iii) repairs to roads in Monterrey as a result of Hurricane Gilbert damage. Allthe components were successfully implemented and met their objectives, namely (i)reduced harmful emissions from buses and a contribution to clean air for the R100component, (ii) a high standard automatic air quality monitoring system within DDF and(iii) the reinstatement of the road network in. Monterrey.

15. Studies - the Project contained various studies (Table 6) and the manner inwhich the study objectives were met is summarized below:

ILliStudy and TA Summary of ResultsSTATE OF MEXICO

I Bus Administration, Incorporated into study 2 belowRoute and Tariff Study

2 Medium and Long Term Objectives achieved to some extent. The study outputsPublic Transport Study were not taken up by the SofM due to changes in State(the study was expanded administration and lack of resources for transport; theto consider all modes) SofM lacked the institutional capability to implement the

bus route-tariff study results. However, the study (i)highlighted the need for SofM-DDF transport integrationand assisted in the formation of COMETRAVI and itssuccessors as a ZMCM-wide transport planning agencyand (ii) some of the planning proposals are now beingtaken further, including the proposed suburban railprogram

3 Maintenance Study for Successfully completed but results rendered redundant asBuses STT (the SofM Bus Company) was liquidated soon after

study completion4 Maintenance Study for Objectives achieved - formed the basis of the

Highways maintenance program financed by the Project;established the SIAM system, which while not a fullpavement management system, is used in the JuntaCaminos of SofM to schedule maintenance activities.

5 TSM Studies Objectives partly achieved - a series of studies were

7

completed but TSM projects were not implemented;some measures are currently under review and formingthe basis of new projects

BANOBRAS6 TA to assist Objectives significantly achieved - some TA was not

implementation fully successful in BANOBRAS but the exposure ofBANOBRAS to advice in systematic transport planninghas increased awareness and expertise in the agency inthe transport sector; various operational manuals havebeen produced to guide cities and transport programs;

7 Medium Sized Cities Objectives achieved - the studies established the criteriaProject Preparation for the now on-going MSCP; various city programs for

______________________ implementation were prepared.

16. To summarize, the Project was implemented over a long period and against acomplex background of political, technical and economic changes. As a result,investment needs changed (e.g. roads were further deteriorated compared to conditions atAppraisal), investment priorities changed (e.g. the decision by Monterrey to pursue ametro outside the Project), political changes affected the organization of the sector (e.g.the elimination of STT) and there was a lack of political will and institutional capacity tofollow through some of the complex policy components (the TSM and Public Transportcomponents). Thus, not all objectives were achieved. Nevertheless, the Project was thefirst urban transport project in Mexico and significant benefits accrued to the users of thetransport system in SofM from the Corridors and the Maintenance components and inMonterrey from the Hurricane Gilbert remedial works. The DDF components, added in1990, were successfully implemented with beneficial results from reductions of busemissions; an air quality monitoring was established. Furthermore, from a low level ofinitial experience, BANOBRAS increased its expertise and capabilities in urban transportas has been demonstrated by successful cooperation with the Bank in developingintegrated transport projects in Medium Sized Cities and now, supervision of the on-going Bank project.

17. Financial Performance. The Project was adversely affected by the generaldownturn in the Mexican economy during most of the 1990's, which significantlyreduced the availability of counterpart funds for Project activities and was a majorcontributory factor to the implementation delays.

18. At the component level, although quantitative data are not available, theMaintenance program should have had an overall positive impact on SofM's transport -

expenditure since if road rehabilitation had been further deferred, then full scalereconstruction would have been necessary; furthermore, the establishment ofmaintenance planning also assist the SofM in making most effective use of resources.

19. Only one component, the LVC Toll Expressway, involves direct cost-recovery from users. The LVC does not result in an acceptable Financial Rate of Return(FRR) due to lower than estimated traffic demand and construction cost over-runs. Itappears possible that the financial return could be improved through (i) levying a more

8

realistic toll to balance and optimize demand and revenue and (ii) improvement of thevehicular access to/from LVC's catchment iarea within SofM.

20. Economic Performance. Generally, data are not available for economicanalysis of investments under the Project. Within SofNL, no data exist from which toassess the performance of the Inner Ring Road. This lack of data is attributable to theclosure of the PIU at the time Monterrey %vithdrew from the Project and the subsequentchanges of political administration and technical personnel in SofNL agencies. A ProjectCompletion Report memorandum was prepared when Monterrey withdrew from theProject but was concerned primarily with procedural issues and not with quantitativeevaluation. The very nature of the other major investments in Monterrey - transportinfrastructure repair works following Huiricane Gilbert - precluded the assembly of"before" data. Subjectively, it is considered (i) probable that the Inner Ring Roadcomponents were economically viable - the works were concentrated at heavily usedjunctions and traffic queues were commoniplace "before" and the investments ensuredconsistent traffic capacity throughout the relevant sections of the route and (ii) that theHurricane Gilbert works were economically, viable - the works restored important majorroads within the road network.

21. Within SofM, there is also little data from which to assess the economicimpact of investmients. The SofM Junta Caminos has assessed "after" travel speeds onrehabilitated roads and report that speeds are up to 30% higher than "before" speeds butthese data are localized measurements and not adjusted for traffic flow variations.Nevertheless, they support the subjective view that the Corridor and Maintenanceinvestments have had a significantly positive impact on travel speed and vehicleoperating costs (particularly due to the reduction in road roughness) on Project roads.With respect to the LVC Toll Road, it appears likely that the low demand (of some 40%of Appraisal estimate) means that the estimated economic benefits have not beenrealized.

22. The irnpacts of the DDF components (Ruta 100 engines and equipment forRAMA) have not been assessed quantitatively since (i) it is not possible to attacheconomic value to reductions in emission and furthermore, Ruta 100 has now beenliquidated and (ii) the RAMA equipment cannot be assessed in quantitative terms.However, both components are assessed as positive in their impacts.

23. The F3ANOBRAS components consisted of TA and study activities; noquantitative economic evaluations are possi'ble but it is considered that the activities havecontributed significantly to the human capital and institutional development of the sector.

D. Major Factors Affecting the Project

24. This vwas the first urban transport project in Mexico financed by the Bank. Itencountered some of the problems that affect initial interventions in a sector. The factorswhich affected the Project have been outlined in para 5. Three key aspects are noted (i)

9

institutional weakness in the sector, (ii) deterioration of the economic situation in Mexicoduring the life of the Project and (iii) the influence of political changes.

25. At the Federal level, previous Bank Projects had been adversely affected byinstitutional weaknesses within BANOBRAS and this was recognized as a risk during thepreparation of the Project. To meet this risk, technical assistance was provided toBANOBRAS. However, while there are indications that the TA helped alleviate theproblem, it takes time for an agency to develop its expertise in a complex sector. At theState level, the Project provided studies and TA to the traffic and maintenance agenciesbut (i) in SofNL, this was not aimed at a permanent institution and (ii) in SofM, althoughthe intervention was successful for road maintenance, the traffic management institutionshave since been disbanded.

26. The deterioration in the macroeconomic situation during the Project period(1987-1998) substantially affected Project execution. Financial stringency imposed bythe economic downturn restricted the availability of counterpart funds, slowed the rhythmof investments. In addition, tariff increases forecast at appraisal or recommended bystudies could not be implemented because the GOM and local agencies considered theminflationary.

27. The political changes had significant impacts on Project scope includingcancellation of the Monterrey components due to the decision to pursue the metro,liquidation of State bus companies which were beneficiaries under the Project (STT inSofM and Ruta 100 in DDF), decisions by DDF to proceed with Metro Line 10 (whichrequired re-orientation of major Project components in SofM, changes in institutional set-up (such as elimination of COTREM) and so on. Over an 11-year period, such changes arenot unexpected but it requires a well-established and professional institutional structure tomeet the challenges brought about by the changes.

E. Project Sustainability

28. At the policy level, the Project has had a sustainable effect on transportinvestment planning. The direction of policy currently being pursued by GOM (withBANOBRAS as its agent) and local agencies in the follow-up MSCP owes much to theconcept of the original Project in that conditions of participation include (i) systematicurban transport planning forms the basis for investments, (ii) the need for allocation ofadequate financing of maintenance of transport infrastructure and (iii) the need to establishtraffic-transport institutional capabilities.

29. The record of institutional sustainability of the Project is mixed. At theFederal level, BANOBRAS approach to urban transport investment planning and resourceallocation is now more technically sound than at the outset of the Project. Within SofM,recent events have placed institutional sustainability of traffic planning in doubt. TheTraffic Division of COTREM, which had managed Project work and received the TA, wasdisbanded in 1998 although the staff have been absorbed into the DGV. However,sustainability of road maintenance appears to be on a firmer foundation; the Project

10

provided TA to the Junta Caminos and contributed to the SIAM system; this is still inoperation. There has been no specific institutional sustainability within SofM as the PIUwas disbanded when Monterrey withdrew.

30. The sustainability of components in the DDF is also mixed. The Ruta 100engine componernt was set up to include conditions on engine maintenance and tariffsreviews to increase cost recovery. However, these aspects were not realized as Ruta 100was disbanded. The RAMA equipment has proved fully sustainable and is well maintainedand subject to continuous quality checks.

F. Bank Performance

31. Bank Performance during Project Appraisal was satisfactory. In particular,the preparation exercise was instrumental in requiring the Borrower agencies to take anew, progressive view of important urban t;ransport sector issues.

32. The Bank effort on supervision (Tables 12 and 13) comprised over 175 staffweeks, included 204 days in the field, and involved 54 staff members. This wasconsiderably greater than estimated at Appraisal and was due to (i) the staff inputs neededby the Bank to respond to requests by GOM for changes in Project scope, notably the airpollution emergency in DDF and the effects of Hurricane Gilbert in SofNL, (ii) thelonger than planned implementation period, (iii) the lack of urban transport expertise inthe local agencies which involved the Bank in greater than planned inputs to maintainprogress of the Project and (iv) intensive preparation work on the follow-on MSCP (seebelow). Nevertheless, despite this effort, Project implementation fell somewhat short ofexpectations and parts of the Project were not fully implemented. While the majorreasons for the elimination of components have been described in foregoing sections,more may have been possible during Supervision to stimulate greater action in the trafficmanagement and public transport reform piograms.

33. The Bank showed flexibility and responsiveness in meeting the requests fromGOM to use Project funds to alleviate the effects of two emergencies: (i) repair ofdamaged transport infrastructure in Monterrey following Hurricane Gilbert and (ii)measures to assist in alleviating the transport related air pollution crisis in ZMCM.

34. During the later stages of the Project, considerable effort was devoted to thedevelopment of a MSCP. The Supervision missions, BANOBRAS and Secretariat ofSocial Development (SEDESOL) established the framework for MSCP and assisted indirecting a series of specific city studies. MSCP was subsequently financed with BankLoan 3559-ME for US$200 million to improve air quality, the efficiency of urbantransport systems and institutions in qualifying cities throughout Mexico.

35. Although there were, from time to time, changes in Bank staff, a substantialdegree of continuity in the essential Bank staff involved made for good cooperation and aconstructive dialogue between the Borrower and the Bank. Overall Bank performance israted as satisfactory.

11

G. Borrower Performance

36. Borrower Performance during Project Preparation and Appraisal wassatisfactory. Stimulated by the Bank over a preparation period of more than two years(and several Project briefs) the Borrower produced a credible analysis of, andjustification for, the investments.

37. During Project Implementation, Borrower performance was somewhat lesssatisfactory. At Federal level, BANOBRAS performed administrative aspects well(procurement supervision, disbursements, preparation quarterly reports etc). However, atthe outset of the Project, the agency lacked technical expertise to deal with policy andtechnical issues to maintain the proposed pace of implementation. During the Project,BANOBRAS benefited from exposure to the sector through Bank Supervision missionsand, to some extent, from TA. Thus BANOBRAS has been able to take a more pro-active role in subsequent transport projects (MSCP Loan 3559-ME and Transport AirQuality Project (Loan 3543-ME). It is concluded that overall the performance wassatisfactory.

38. At the SofM level, the Traffic Division (COTREM) was hampered by theeconomic downturn in Mexico leading to paucity of counterpart funds, frequent changesin administration and lack of expertise in traffic matters and, in the end, although studiesand designs were completed, little implementation was achieved in the TSM or PublicTransport components. The Maintenance Division (Junta Caminos) of SofM, after a slowstart, performed well and benefited from the TA under the Project to strengthen theirexpertise.

39. Borrower Compliance with Loan Covenants was generally satisfactory. Thestatus of implementation of major legal covenants is given in Table 10. By and large, themajor covenants in the Loan Agreement were complied with (some compliancerequirements were amended due to curtailment of parts of the Project) although somewere complied with significant delays. A further agreement was reached with DDFrelating to the procurement of engines for Ruta 100 (over tariff policy) but liquidation ofthe company voided the agreement. Overall Borrower performance is rated assatisfactory.

H. Assessment of Outcome

40. The outcome of the Project was mixed. Cancellation of some components(notably bus lines of credit) meant that public transport objectives were not achieved andnot all remaining, original components were implemented in the form envisaged atAppraisal. There was a notable lack of traffic management actions although someinterventions were subsumed into Corridor components. Implementation was slowerthan forecast. Nevertheless, the Corridor and Maintenance-Rehabilitation works hadpositive impacts in economic terms, in financial terms (through improved planning ofresource allocation to maintenance) and in raising awareness of cost-effective measures.

12

The LVC appears not to have achieved either its economic or financial returns but this isattributed to unrealistic tolls and poor local road connections rather than a poor schemeconcept. While some components were cancelled by Borrower agencies, others weresubstituted and these, at the time of their inclusion, had positive impacts. The Project hada positive impact on urban transport planning and project development (i) generally inMexico through the approach to urban transport, now demonstrated by the on-goingMSCP Project, and (ii) through promoticin of the case for integrated transport in ZMCMthrough support to COMETRAVI and its successors. Thus, although the Project did notachieve all objectives, it was an initial project in the sector and must be viewed againstthe background of a long time-scale and changing political events, economic conditionsand institutional changes and its outcome is regarded as generally positive. Thus, asatisfactory rating has been given.

I. Future Operation

41. Responsibility for the operation and maintenance of infrastructureinvestments rests with the SofM and, in so far as they were implemented, with SofNL.The components involved conventional technology and continued operation rests with theapplication of successful maintenance. Since this is the area, in the SofM, where mostinstitutional gain was made, continued operation should be adequate but budget provisionfor maintenance is understood to be uncertain. In the SofNL, no data are available. Theresidual component in DDF, the RAMA equipment, continues to operate well. Theimplementation of the follow-up Projects., Medium Sized Cities Project (Loan 3559-ME)and Transport Air Quality Project (Loan 3543-ME), are expected to enable the Bank tomonitor the ins-titutional strengthening of BANOBRAS and other involved agencies.

J. Key Lessons Learned

42. Although there were shortfialls in the implementation of the Project, theoverall experience was positive. Physical improvements were made to the road networkand the continuaous dialogue with the Bank, particularly in the first few years of theProject, steered BANOBRAS and the local agencies towards institutional strengtheningand a growing vision of the Urban Transport Sector - culminating in the development ofthe MSCP. In particular, the Project emphasized the importance of conservation oftransport infrastructure - through both investments in works and in system planning.Nevertheless, there are lessons to be learned.

43. Political Commitment and Changing Priorities - it is essential forimplementation of traffic and transport schemes and policies to secure politicalcommitment. In Monterrey, while there was political acceptance at the outset, thecommitmeiit to the Project was not strong enough to retain scarce counterpart funds whenfaced with competition from a proposed metro. There is no easy way for which to planfor changing political priorities, particularly in a Project with a life of over 11 years.However, the lessons learned are (i) projects should be "shorter" in planned duration (theoriginal Project was scheduled at 8 years) even if this means a project of reduced scale;shorter implemientation periods would safeguard, to some extent, against changing

13

priorities (an Adaptable Program Loan, APL, could be very appropriate) and (ii) there is aneed to seek improved consultation procedures with decision makers and keystakeholders. For further work in the sector, the agency responsible for the project shouldhave the capacity to play an effective leadership role in the pursuit of policy reforms.

44. Institutional Arrangements for Implementation - the fundamental requirementfor the successful implementation of an urban traffic and transport program is theexistence (or creation) of a strong, professional Traffic Management Unit (TMU) orequivalent. Planning and implementation of traffic schemes and policies involves manyagencies including state or national "public works" agencies, municipality agencies, landuse and development control planning agencies, bus operators and regulators, privatetransport operators (trucks, taxis, para-transit, etc) as well as the TMU itself. Unless astrong TMU exists (or is created) with adequate powers and financing, successfulimplementation of TSM components will be at risk. In SofM, the Project foresaw thisissue and provided TA to COTREM; however, the agency proved to have insufficientexperience in the area and had no budgetary powers. The lesson learned is that Bankurban transport lending in Mexico should be even more strongly focussed on institutionalstrengthening and that the agency selected for planning should have a clear mandate tosecure implementation.

45. Project Design - the design of the Project was not unduly complex and yetsignificant elements of components were not implemented, notably the TSM and PublicTransport Components. Preparation studies were completed for both components butimplementation did not follow. The lessons learned are:

(a) Public Transport - Lines of Credit. The component was not implemented for atleast two basic reasons. First, it was linked to bus route rationalization andreform of public transport organization (such as tariff levels) wvhich, althoughstudied, were not implemented. Second, the arrangements to actualize the linesof credit outlined at Appraisal were reasonable proposals but did not proveacceptable (even though operators had been consulted; issues not fully resolvedincluded the ability and/or willingness of operators to participate in the creditline, the availability of alternative financing sources (such as supplier creditsfor buses) and the integration of buses to be financed under the line of creditwith existing buses6. The viability of bus lines of credit requires extensiveresearch into the structure of the local bus service supply industry, its sources ofalternative finance and how to integrate, on a staged basis, new buses with theexisting bus fleet (particularly as new tariffs may be needed to supportfinancing of the new buses). The lesson learned is that it is necessary to takethe development of a line of credit to a "final scheme" stage by Appraisal;

6 The forner (new buses) would be of higher quality and have lower emissions than the latter (existing, orexisting type, buses) but would cost considerably more. As there are many thousands of buses in SofM, alow percentage of the fleet would be replaced if the line of credit came into operation. The issues includehow to set differential fares to enable the new, high quality buses to recover costs, the willingness of(some) users to pay premium fares etc.

14

(b) TSM - a strong, professional TMIU is essential for the realization of a trafficmanagement program; the lesson to be learned has been described in para 44and is endorsed.

46. Approach to Detailed Design at Appraisal To ensure a rapid start toimplementation, it is now standard practice at Appraisal for detailed design to becompleted for a significant proportion of any urban transport project. Although thecurrent Project was appraised in 1987, this procedure was followed. A significantproportion-by-cost of the Project was available at detailed design level. However, thedesigns were for straightforward road components (the LVC and Ring Road junctions inMonterrey). The components which, although of lower cost, require intensive designeffort (such as the TSM schemes) were not designed. These were planned and designedduring the early years of the Project. However, the schemes were not subsequentlyimplemented following changes of traffic responsibility from State to municipalities andas the focus of attention (by BANOBRAS, SofM and the Bank) in later years of theProject concentrated on the implementation of physical investments. Thus, the TSMobjectives were largely lost. The lessons learned are (i) that detailed design of urbantransport project at Appraisal should not be assessed only on a cost basis but shouldinclude a representative sample of all type of measures proposed for the Project and (ii)even if there is a change in system responsibilities, the co-ordination agency should seekconsensus with the new authorities.

47. Supervision by BANOBRAS ard the Bank -- during later years of the Project,there was an em,phasis on implementation of physical measures and great efforts weremade to speed Up previous slow disbursement performance. As a consequence, thepolicy aspects of the Project (such as possible Public Transport reform in terms of routes,tariffs, etc) and procedural aspects (such as data for monitoring and ex-post evaluations)tended to be overlooked. The lessons learned are that (i) for projects with very longimplementation periods, it is essential to carry out at least one comprehensive review ofthe Project in relation to its objectives after, say, 4 years and a detailed action plan isnecessary to recover any overlooked components or policies and (ii) dialogue betweenthe Bank and the co-ordination agency must be continued within the framework of theAppraisal agreements and activities should not concentrate on physical implementationalone.

48. LVC - the largest single investment does not appear to result in positivefinancial or economic returns. The increase in construction cost was unavoidable but thedanger signs relating to low demand were recognized in mid Project. Bank Supervisionmissions recomrnmended testing alternative tolls to arrive at the optimum balance betweentoll and demand. It does not appear that this advice was taken. The lesson learned is thatin cases where a component has been conmpleted but its benefits are in doubt, the Bankshould exercise all possible influence on the borrower to seek remedial actions -particularly in the present case where such actions appear viable.

15

Part II: Statistical Tables

Table 1: Summary of Assessment

A. Achievement of Substantial Partial Negligible NotObjectives Applicable

Macro PoliciesSector Policies VFinancial Objectives VInstitutional Development /Physical Objectives /Poverty Reduction /Gender Issues /Other Social Objectives VEnvironmental Objectives VPublic Sector Management V/Private Sector Development /

B. Project Sustainability Likely Unlikely Uncertain

.~~~~~~~

C. Bank Performance Highly Satisfactory DeficientX _ _ ~~~~~~Satisfactory

IdentificationPreparation Assistance Appraisal Supervision 1

D. Borrower Performance Highly Satisfactory DeficientSatisfactory

Preparation_ _Implementation Covenant Compliance V,

E. Assessment of Outcome Highly Satis factor Unsatisfactcory HighlySatisfactor Unsatisfactory

V

, . . _. .. .~~

16

Table 2: Related Bank Loans/Credits

Loan/credit title Amount Year of approval Status

1.Loan#1990 164.0 1981 Disbursed

Urban & RegionalDevelopment

2.Loan #3543 220.0 1992 In ProgressTransport Air Quality

3 Loan #3559 200.0 1993 In ProgressMedium Sized CitiesUrban Developrnent

Source: World Bank Statement of Loans

17

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual

Identification (Executive Project Summary) March 10-24,1985

Preparation March 31 -April 6, 1986

Preparation II May 12-24, 1986

Appraisal July 23-August 9, 1986

Negotiations Feb 24-March 3, 1987 &

l______________ April 10, 1987

Letter of Development Policy (if applicable) N/A'

Board Presentation May 28, 1987

Signing July 31, 1987

Effectiveness February 11, 1988

First Tranche Release (if applicable) N/A

Midtern review (if applicable) N/A

Second (and Third) Tranche Release (if N/Aapplicable)

Project Completion June 30, 1995 June 30, 1998

Loan Closing December 31, June 30, 19981995

Source: Project Files

1 Not Applicable

Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual(US$ thousands)

FY1988 FY1989 FY1990 FYi991 FY1992 FY1993 FY1994 FYI995 FY1996 FY1997 FY1998

Appraisal Estimate' 19.5 32.8 59.6 86.4 96.4 104.1 110.3 119.8 125

Actual 13.8 29.9 34.1 49.4 55.6 58.9 66.46 76.9 81.5 83.2 90.5

Actual as % of Estimate2 70.70% 91.50% 56.90% 57.14% 57.60% 54.70% 73.00% 84.50% 89.50% 91.40% 99.50%

Date of Final Disbursement:October 30, 1998

Source: World Bank Loan Records co

Table 5: Key Indicators for Project Operation(Not available)

'An amount of US$34,016,769.70 was cancelled with effect from November 6, 1992, and the closing date of the project was extended to June 30, 1998. The lastdisbursement was made on October 30, 1998 when the remaining balance of $526,840.57 was cancelled.2 The percentages from FYI 993 awards reflect the reduced amount of the Loan.

Table 6: Studies for the Project

STUDIES' IMPLEMENTATIONDate started Date completed Date of result revision Plan of Action Date started

STUDIES AND TECHNICAL ASSISTANCE Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual

MEXICO

I. Administrative study of bus routes and tariffs Mar-87 Mar-88 Feb-88 Apr-92 Feb-88 var. Mar-88 -- Apr-88 --

2. Study of public transport, medium and long range Mar-87 Mar-88 Jan-89 Apr-92 Jan-89 var. Feb-89 -- Mar-89 --

3. Maintenance program for busses Mar-87 Mar-88 Mar-89 Apr-90 Mar-89 var. Apr-89 -- Jan-904. Maintenance program for highways Mar-87 Feb-89 Apr-88 Mar-90 Apr-88 var. Jan-89 Apr-88 Feb-89 May-885. Traffic administration study Mar-87 May-94 Jan-88 Apr-96 Jan-88 var. Apr-88 Jan-88 Jan-89 Feb-88

BANOBRAS

1. Technical assistance in implementation of project Mar-87 Feb-87 n/a Jun-93 n/a var. n/a var. n/a Mar-942. Study for medium sized cities Mar-87 Mar-97 Mar-88 Mar-93 Apr-88 var. Jan-89 Mar-93 Jan-89 Feb-9

Source: Borrower's Report

Summary of results of studies detailed in para 15 of the main report.

Table 7: Key Indicators for Financial Position(Not available)

Table 8A-1: Project Costs

_ Appraisal Estimate (US$M) Actual/Latest Estimate(US$M)

Local Foreign Total Local Foreign TotalItern Costs Costs Costs Costs

1. Corridor 51.2 27.6 78.8 31.30 35.82 67.12Improvements

2. Public 47.7 31.8 79.5 3.36 3.36Transport

3. Road 28.7 16.1 44.8 15.82 17.78 33.60Maintenance

4. Traffic 6.2 4.8 ii.u 6.94 6.94Management CD

5. Technical 1.4 1.3 2.7 0.28 5.32 5.60Assistance

6. Contingen- 49.1 28.5 77.6cies

7. PPF 0.1 0.4 0.5 0.35 0.35

8. Equipment! 6.80 20.89 27.69Motors

TOTAL 184.4 110.5 294.9 54.20 90.46 144.66

Source: Bank and Borrower 's records

Table 8A-2: Project Costs

Appraisal Estimate (US$M) Actual/Latest Estimate (US$M)

Local Foreign Total Local Foreign TotalItem Costs Costs Costs Costs

1. Nuevo 75.30 45.00 120.30 10.65 11.66 23.31Le6n

2. State of 107.50 63.20 170.70 35.47 51.74 87.21Mexico

3. Federal 1.97 1.94 3.91 7.08 27.06 34.14

TOTAL 184.77 110;14 294.91 54.20 90.46 144.66

Source: Bank and Borrower's records

Table 8B: Project Financing

Appraisal Estimate (US$M) Actual/Latest Estimate(US$M) 1Local Foreign Total Local Foreign Total

Source Costs C.osts C.osts C.osts

IBRD/IDA 14.50 110.50 125.00 90.46 90.46

State of Mexico 94.50 94.50 35.47 35.47

State of Nuevo Le6n 62.40 62.40 10.65 10.65

Federal Government 13.0 13.0 7.08 7.08

TOTAL 184.40 110.50 294.90 54.20 90.46 144.66

Source: Bank and Borrower's records

Table 9A: Economic Costs and Benefits(Not available)

Table 9B: Financial Anaysis of La Venta-Chamapa Toll Road

Project Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20Calendar Year 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Cars Million/year 1.80 1.90 2.00 2.05 2.11 2.32 2.60 2.70 3.00 3.50 3.70 3.80 4.00 4.40 4.70 5.00 5.40 5.80 6.20 6.70Other vehicles Million/year 2.50 1.63 1.05 0.72 0.63 0.55 0.55 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50Cuota cars NP 1987 prices 0.54 0.54 0.65 0.70 0.73 0.70 0.73 0.83 0.58 0.52 0.55 0.58 0.61 0.64 0.67 0.70 0.74 0.77 0.81 0.85

Cuota other vehicles NP 1987 prices 2.50 3.00 4.00 4.69 5.55 5.31 5.58 5.77 4.98 6.01 7.67 8.05 8.46 8.88 9.32 9.79 10.28 10.79 11.33 11.90Total Income from tolls Million NP 7.22 5.92 5.50 4.81 5.04 4.54 4.97 5.13 4.23 4.83 5.87 6.22 6.65 7.24 7.80 8.40 9.12 9.88 10.70 11.67

Operation Costs Million NP 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05 0.05Net Operating Income Million NP 6.99 5.68 5.27 4.58 4.62 4.31 4.73 4.89 4.00 4.41 5.64 5.99 6.42 7.01 7.38 8.17 8.88 9.65 10.47 10.69

ROE (1987) US$:N.Pesos 1.378Construction Costs (1) US$m 36.90Maintenance costs US$m 0.18 0.18 0.18 0.18 0.37 0.18 0.18 0.18 0.18 0.37 0.18 0.18 0.18 0.18 0.37 0.18 0.18 0.18 0.18 0.92

Net Operating Income US$m 5.07 4.12 3.82 3.32 3.35 3.13 3.43 3.55 2.90 3.20 4.09 4.34 4.66 5.08 5.36 5.93 6.45 7.00 7.60 7.76 X

Outstanding capital sum US$m -31.83 -30.25 -28.85 -27.84 -26.71 -25.72 -24.35 -22.75 -21.67 -20.20 -17.73 -14.80 -11.33 -7.15 -2.36 3.38 0.00 7.00 7.60 7.76Cost of Borrowing (8%) (2) US$m -2.55 -2.42 -2.31 -2.23 -2.14 -2.06 -1.95 -1.82 -1.73 -1.62 -1.42 -1.18 -0.91 -0.57 -0.19 0.00 0.00 0.00 0.00 0.00

Total Outstanding Debt US$m -34.38 -32.67 -31.16 -30.07 -28.85 -27.78 -26.29 -24.56 -23.40 -21.82 -19.15 -15.99 -12.23 -7.72 -2.55 0.00 0.00 0.00 0.00 0.00

Payments(-)/Income(+) (3) US$m -2.55 -2.42 -2.31 -2.23 -2.14 -2.06 -1.95 -1.82 -1.73 -1.62 -1.42 -1.18 -0.91 -0.57 -0.19 2.55 6.45 7.00 7.60 7.76

NPV (US$m) -9.40

(1) Construction costs are based on a Bank memo of June 22, 1988 that shows original bid price of $12.70 million plus sunk costs of $5.97 million plus cost increases of $18.23 million for a total of $36.90million. They were significantly higher than original SAR estimate of $17.90 million.

(2) This is the interest on the construction costs and it is estimated to be around 8%. This cost item does not represent a cash-out item for the invetment as the financial costs are assumed by theGovernment and are not imputed to the investment. Although this item was not included in the original SAR cost estimate, it must be taken into account for the evaluation of the financial performance of the

investment.

(3) It is assumed for the purpuse of this evaluation that all revenues from the toll go to pay off the capital investment in the year they are being collected. Eventually (year 16) the investment is paid up andthe road generates a positive net income.

24

Table 10: Status of Legal CovenantsMexico

First Urban Transport Project (Ln. 2824-ME)

Agreement Section Covenant Present Original Revised Description of Commentstype status fulfillment fulfillment covenant (compliance)

date date

LA 3.02 3 C BANOBRAS shall enter Cinto contractualarrangement satisfactory tothe Bank, with S.H.C.P.,providing for the transferof the Loan funds

LA 3.03 3 C BANOBRAS shall make a Csubsidiary loan to eacheligible state for purposesof relending such proceedsof the loan as shall berequired by such eligiblestate to carry out Parts Aand B of the Project

LA 3.04 3 NC BANOBRAS undertakes GOM's bus fleet wasthat all subloans to eligible privatized and no subloanbeneficiaries for bus for purchasing buses wasinvestments shall be made necessarypursuant to the terms andconditions for subloans setforth in Schedule 8 of theLoan Agreement

LA 3.05, 5 CP No latter than 30 days Complied but poor3.06 before the end of each availability of funds

fiscal year, the Borrower adversely effected project(BANOBRAS) shall implementation, includingfurnish to the Bank a cancellation of part A ofproposed Annual the Project andInvestment Plan, including $34millions of Bank loansannual budget allocations,and the proposed annualroad maintenance programand the budget made andproposed to be made byeach eligible state

LA 3.07 9 CD BANOBRAS shall Complied with defectsprovide quarterly projectprogress reports

LA 3.08 10 CD In accordance with a plan Studies under part A wereset forth in schedule 6 of not fully carried outthe Loan Agreement, the because this part of theborrower shall carry out, project was cancelled.or cause to be carried out, Studies under Parts B, C,each of the studies and D were carried outdescribed in Schedule 2 of albeit with some delays.the Loan Agreement,discuss their results withthe Bank, and implementtheir agreed action plans inaccordance with theirtimetables

LA 3.0'3 5 C Procurement of goods, Cworks and consulting

25

services financed out ofthe proceeds of the loanshall be governed by theprovision of Schedule 4 ofthe Loan Agreement

LA 3.10 1 C The Borrower assumes, as Cprimary obligor, theobligation of the Guarantorcontained in the ProjectPreparation Advanced

LA 4.01(a) I C The Borrower shall Cmaintain, and cause eachof the eligible states tomaintain separate recordsand accounts adequate toreflect the operation s,resources and expendituresof the Project and eachsubproject

LA 4.01(b) 1 CD The Borrower shall have Cthe accounts mentioned in4.01(a) audited byindependent and shallfumish this records to theBank no latter than sixmonths after the end of thefiscal year. Each month theBorrower, shall fumish tothe Bank certifiedstatements of the SpecialAccounts

LA 4.01(c) I C For all expenditure Ccharged to the LoanAccount on the basis ofstatement of expenditure,the Borrower shall a)maintain adequate recordsand accounts, b) retainrecords for at least oneyear after last AuditReport is received by theBank, c) let Bank staffexamine records, d) haveextemal auditors prepare aseparate opinion

Source. Project Files

26

Covenant types:

I. = Accounts/audits 8. = Indigenous people2. = Financial performance/revenue generation from 9. = Monitoring, review, and reporting

beneficiaries 10. = Project implementation not covered by categories 1-93. = Flow and utilization of project funds II. = Sectoral or cross-sectoral budgetary or other rcsource4. = Counterpart funding allocation5. = Management aspects of the project or executing 12. = Sectoral or cross-sectoral policy/

agency regulatory/institutional action6. = Environmentall covenants 13. = Other7. = Involuntary resettlement

8. Present Status: Source: Project Files

C = covenant complied withCD = complied with after delayCP = complied with partiallyNC = not complied with

27

Table 11: Project Implementation Program

1. State Of MexicoComponents 86 87 88 89 90 91 92 93 94 95 96 97 981. Corridors

Appraisal

Actual

2. PublicTransport

Appraisal --------

Actual

3. HighwayMaintenance

Appraisal

Actual

4. TrafficSystems

Appraisal

Actual

2. State Of Nuevo Le6nComponents 86 87 88 89 90 91 92 93 94 95 96 97 981. Corridors

Appraisal

Actual

2. PublicTransport I I

Appraisal

Actual Not m p I e m e n t e d

2.8

3. HighwayMaintenance

Appraisal _

Actual

4. TrafficSystems

Appraisal _ _ a a _ a Actual Not I m p I-e m e n t e d

Source: Borrower's Report

29

Table 12: Bank Resources: Staff Inputs

Stage of Planned' Revised Actual

Project Cycle Weeks US$2 Weeks US$ Weeks US$

Preparation to Appraisal N.A.' N.A. 50.40 102.10

Appraisal-Board N.A. N.A. 57.20 93.80

Negotiations through Board Approval N.A. N.A. 22.70 54.30

Supervision 38.30 91.80 175.40 422.10

Completion 9.00 20.00 10.00 25.00

TOTAL 47.30 111.80 315.70 697.20

Source: FACT Bank Records

1 US$ are in thousands

2 Planned figures are available only for the last 3 years of the project file

3 Not Available

:30

Table 13: Bank Resources: Missions

Performance Rating

Number Specialized Implemen- Develop-Stage of Month/ of Days in StaffSkills tation ment Types of

Project Cycle Year Persons Field Represented' Status Objectives Problems

Through Appraisal I

Identification March 85 1 14 TP

Preparation March 86 1 6 TP

Preparation May 86 5 12 TP, Eng. C(3)

Appraisal July 86 5 16 TP (2), E (2),FNA

Appraisal throughBoard Approval

Supervision Sept 87 2 3 TP, E

Supervision Feb 88 3 11 TP, E, C

Supervision July 88 2 12 E, C

Supervision Oct 88 1 7 C 2 I Hurricane

Supervision Nov 88 2 12 E, C 2 1 F

Supervision March 89 2 II E, C 2 1 F

Supervision July 89 4 17 E, Eng., FNA, C 2 I F

Supervision March 90 3 14 E, Eng., C 2 1 Alsopreparation2nd Urban

Project

Supervision Aug 90 3 12 E, Eng., C 2 1 F, PM

Supervision Nov 90 2 6 E, TP F, PM

Supervision March 91 2 7 TP, C 2 1 CancellationPart A

Supervision June 91 3 13 E, TP, C 2

Supervision Nov 91 2 2 Eng., C 2 1 LimitedSupervision

Supervision Feb 92 2 5 Eng., C 2 I

Supervision Feb 93 4 24 E, C (2), TP 2

Supervision April 93 2 10 E, Eng. 2

Supervision Aug93 1 4 E, Eng. 2

Supervision Nov 93 I 5 Eng. 2 2 Change inGOM

Supervision May 94 _ 3 Eng. 2 S

Supervision Sept 94 i 4 Eng. 2 S NewAdministra-

tion

Supervision Feb95 i 4 Eng. 2 S SOM

31

interested innew project

Supervision MayI95 4 Eng. 2 S

Supervision Dec 95 I 4 Eng. 2 S

Supervision May 96 I 9 Eng. 2 S Financialconditions of

GOMdeteriorates

Supervision Oct 96 i 3 Eng. 2 S

Supervision June 97 2 3 Sng. (2) S

Supervision Dec 97 2 3 TM, Eng. S

Supervision May 98 2 2 Eng. (2) S

Completion

ICR 2 4 Eng. (2) 3 S

Source: Project Files

iDefinition of skills:Eng = EngineerE = EconomistTM = Task ManagerC = ConsultantTP = Transport Specialist

Appendices

33

APPENDIX A: MISSION'S AIDE MEMOIRE

MEXICO - FIRST URBAN TRANSPORT PROJECT (LOAN 2824-ME)SUPERVISION MISSION MAY 11-14,1998

1. A mission of the World Bank visited Mexico to follow up the execution of theworks financed partially by Loan 2824-ME, and to initiate action for the preparation ofthe completion Report for the project. The mission included Messrs. Guillermo Ruan,Gustavo Unda and Mahendra Lal.

2. The mission acknowledges the cooperation received from the Secretariat ofCommunications and Transport (SCT), the Secretariat of Finance and Planning of theState of Mexico as well as the National Bank of Public Works and Services(BANOBRAS). Attached (Annex 1) is a list of the officials who participated in thediscussions with the mission.

Subjects Dealt with by the Mission3. The following main subjects were discussed:

(a) Physical progress of the works,(b) Complementary works,(c) Implementation Completion Report.

Physical Progress of the Works4. The mission, along with the officials of the Government of Mexico andBANOBRAS, visited all the works in progress and met with the Contractor and thesupervising firm for each of these works. The works show significant progress since theDecember 1997 mission. The highway works have been finished (paving and bridge)except for some pending works that are described in the following paragraphs. These areexpected to be completed by June 30, 1998, the date of closing of the loan, according tothe work program attached.

(a) Avenida Control Phase III- cabling of illumination posts- assembling of 4 bridges (for pedestrians)- automatic barriers for railway (Ferroviales responsibility)- arranging the joints for covering the canal.

(b) Lecheria - Cuantitlan- arrangement of open graded joints approx. 3.5km of highway- horizontal signaling- stoplight signals- installation of public lighting- pedestrian bridges- urban passage.

(c) Adolfo Lopez Mateos- correction of the sinking of the part under the responsibility of ConstuctoraOchoa S.A. and ICA Construction Urbana S.A. de CV

(d) Side streets of Av. Toluca

34

- this work was completed.

Complementary Works5. With respect to the project of Av. Central, Junta de Caminos sought the missionfor no objection for the execution of some complementary small works from fundsavailable from the loan with the existing; contracts. These works, whose value isapproximately $6 rnillion, are as follows:

(a) 1 00 meters additional of Canal de Sales,(b) open graded treatment of some branches of Av. Central,(c) painting, signaling and re-leveling,(d) cleaning of ridges and highways.

6. The mission has no objection to the requests made provided:(a) all the works are executed before the closing of the loan according to the workprogram,(b) the works are done through existing contracts and not through new contracts,(c) counterpart funds are made availalble.

The official request will be given to the Bank as soon as possible.

Implementation C'ompletion Report7. The mission met with COTREM, the General Highways Directorate, Autopistas yServicios Conexos, the Junta de Caminos and BANOBRAS to discuss the guidelines forpreparation of the ICR which must be presented to the Bank's Directorate within 6months of the closing of the loan. In this meeting the following was reviewed:

(a) The coordination for preparation of the Borrower's Contribution, which willbe the responsibility of BANOBRAS (specifically, Mr. Gustavo RodriguezToledo);

(b) The initial information required by the Bank for the draft of the ICR, which islisted in Annex 3 and should be sent to the Bank no later than June 30, 1998;

(c) The draft ICR will be sent to the Borrower for comments no later thanSeptember 30, 1998;

(d) Once the Borrower's comments are incorporated, the publication anddistribution of the final ICR to the Bank's Directorate will take place.

8. The basic information will be sent b:y the Borrower to the Bank before June 30,1998. Economic evaluations that may require additional time must be sent by July18, 1998.

Mexico, D.F., May 14,1998.

(signed) (signed)Lic. Ismael Diaz Aguilera Ing. Francisco J. Enriquez AriasManager of International Financing Manager of Roads and Transport

(signed) (signed)Lic. Isidoro Mostkoff Linares Sr. Gustavo UndaState of Mexico Transport Commission World Bank

35

APPENDIX B:BORROWER'S CONTRIBUTION TO THE ICR

(SUMMARY)'

PROJECT OBJECTIVES

1. General Objectives

i).- Improve public transportation accessibility, quality of service, operational efficiencyand costs.

ii).- Preserve and maintain investments in transport infrastructure and reduce vehicleoperation costs.

iii).- Rationalize tariff policies, improve economic and financial viability and thesustainability of transport investments, and encourage private sector participation.

11. Reinforce involved institutions' planning capability of development and regulation ofurban transport at the local and national levels.

Initially, the project included the implementation of three components entrusted to differententities as follows:

COMPONENT "A" State of Nuevo Le6nCOMPONENT "B" State of MexicoCOMPONENT "C" Federal, managed by BANOBRAS

Subsequently, a new component was added to the above components:

COMPONENT "D" Activities to monitor and controlenvironmental pollution in the metropolitanarea of Mexico City.

Components "A" and "B" included implementation activities for:

* Improvement of Roads* Public Transport

' Bus System and Maintenance Management Study'> Routes and Tariffs Rationalization* Public Transport Programs

* Roads Infrastructure Maintenance* Traffic Management

The project included specific studies in support of public transport, traffic and roads maintenancemanagement, as well as construction, rehabilitation and maintenance of road infrastructures.

'Due to space constraints, the Bank prepared this summary from the information and data received fromthe Borrower.

36

Component "C" initially included implementation activities to:

* Perform comprehensive urban transport studies in medium size cities (this resulted in thepreparation of the Medium Size Cities Urban Transport Project), which were conducted bythis institution and SEDESOL.

* Provide technical assistance for project monitoring and evaluation.* Purchase equiprnent to support follow-up tasks.* Provide credit to eligible borrowers for the acquisition of buses in the states ilcluded in the

project.

The following activities were later added:

* Provide complementary support for the completion of the study on Integral Strategy forTransport and Air Quality for Valle de M'xico's metropolitan area (ZMVM), which wasfinanced with funds from the Japanese Donation No. 029369. This study would serve asbasis for the Second Urban Transport and Air Quality Project. The execution of theseactivities were entrusted to the Transport and Roads Metropolitan Commission(COMETRAVI).

* Implement the Urban Transport Enterprise Support Model as part of the Urban TransportFinancing Program carried out by BANOBR'AS.

COMPLETION OF PROJECT OBJECTIVES

With regards to objective I (i, ii, iii):

Through activities included in Components "A" and "B", important road infrastructure workswere completed which allowed increased operational efficiency and access to the urban transportsystem through the construction of new roads, access to populous neighborhoods, elimination oftraffic bottlenecks and improving conflicting road intersections. In addition to activities abovementioned, complementary traffic management and road rehabilitation program activities wereconducted.

Rehabilitation work. was basically completed on roads classified as primary by the project. Theconstruction and improvement of road infrastructures allowed the increase of speed limits anddecrease in traveling time, which resulted in lower operating costs. The internal rate of return ofthe project's economic evaluation was greater than 12%, which indicates the value of the project(See Annex 8, Table 1).

In addition to the works, a series of support studies were completed to define specific issuesrelated to urban transport system planning, public transport operation and maintenance.

The impact of works accomplished is significant because of the orientation given to investments,since they handled problems associated with issues developed in the metropolitan areas ofMonterrey, Nuevo Le6n and the city of Mexico, D.F. and because of the amounts allocated inrelation to the size and existing problems in these cities.

Monterrey, for example, has a population of 3 million inhabitants and an area of 1,663 Km2 ; thecornubation of Valle CuautitlAn Texcoco with the metropolitan area of the city of Mexico(ZMCM) has a population of 9 million inhabitants and an area of 3,500 Km2.

37

COMPONENT "A", STATE OF NUEVO LEON

Project funds were used in important activities completed in the metropolitan area of the city ofMonterrey, such as the consolidation of the inner city beltway with access to neighborhoods and,in a very prominent way, the assistance to the damages caused by HurricaneGilberto in the banksof the river Santa Catarina that runs through the city. These are shown in the following briefsummary:

COMPONENT "A" NUEVO LEON

PROJECT SCOPE OF WORK STATUS DISBURSEMENTSBANOBRAS IBRD

TOTAL (millions) US$11.6

Monterrey Inner Construction of CompleteCity Beltway 6 BridgesConsolidation

Improvements and CompleteRoads Construction

Neighborhood Construction of CompleteAccess several kilometers

Hurricane Gilberto'sReconstruction andProtection Works

COMPONENT "B", STATE OF MEXICO

Activities that were completed in Valle Cuautitlan-Texcoco, formed by the cornubation of theState of Mexico and the Federal District, represent a very important contribution to meet theneeds of primary roads in the northern area of the city of Mexico. These were the rehabilitationand partial construction of the main access roads to this area and the consolidation of connectionof this area with Toluca, capital of the State of Mexico.

The following construction works stand out:

* Naucalpan-La Venta Freeway and road rehabilitation programs which include access roads tothe northern zone of the metropolitan area.

* Mexico-Queretaro Freeway, with a traffic of about 200,000 vehicles per day in the sectionbetween Cuatro Caminos and Kilometer 11.3, which constitute the link with the main roadssystem that connect the city of M6xico with the central-north region.

* Rehabilitation of Avenida Ceylan and its widening to 8 lanes in the section connectingMexico-Qeretaro Freeway and Avenida Mario Colin, which handles most freight and outsidebus traffic.

* Rehabilitation and construction of Avenida Central which was extended from Bulevar de losAztecas to Ecatepec and, aside from being the traffic structuring element of an area inhabitedby nearly 2 million people, is the only north-east access to the city of Mexico.

* Construction of the most strategic axes in Zona Valle de Chalco, which involved theconnection of this zone with the mass transport service terminals at los Reyes-La Paz, Stateof Mexico.

38

* Reliabilitation of 9 of the most important: primary roads in Zona Valle de Chalco.

Following is a list of completed works:

DESCRIPTION STATUSA. Project Works

- La Venta-Chamapa Toll Paying Road Complete- Mexico-Queretaro Freeway Rehabilitation Complete- Ave. Central I' Phase Rehabilitation Complete- Indios Verdes-San Juan y Via Morelos Ftehabilitation Complete- Mexico-Queretaro Freeway Signalling Complete- Ave. Central Signalling Complete- Ave. Cuauhtemoc Construction Complete- Ave. Uno and Jose G. Posada Construction Complete- Ave. Isidro Fabela Construction Complete

- Via Gustavo Baz Rehabilitation Complete- Ave. Ceylan Drainage and Reconstruction Cancelled- Ave. Toluca Laterals Construction Complete- Ave. Toluca Bridges Construction Complete- Via Adolfo L6pez Mateos (R- 1) Construction Complete- Via Adolfo L6pez Mateos (R- 1) Bridges Construction Complete- Via Adolfo l,6pez Mateos Pemex Pipes Relocation Complete- Ave. Central 2nd Phase Rehabilitation Complete- Ave. Central 3d Phase Construction Complete- Bridge "El Arbolito" Construction Complete- Bridge "La Papelera" Construction Complete- Bridge "Lec]heria-Texcoco" Construction Complete- Ave. Central 3rd Phase Bridge Construction Complete- V. Los Reyes-Acozac-Zumpango Rehabilitation Complete- Aves. Isidro Fabela and G. Posadas Construction Complete- Ave. Primero de Mayo Rehabilitation Complete- Via Lecheria-Cuautitlan Widening Complete- Lecheria-Cuautitlan Pemex Pipes Relocation Complete

B. Technical Assistance and Supervision- Transport Planning Study Complete- Bus Maintenance Study Complete- Roads Maintenance Study Complete- Ave. Central 1st Phase Supervision Complete- Valle de Chalco Executed Projects Complete- Toluca's Integral Study Complete- Av. Central, R- I and Tecamachalco Study and Projects Complete- Ave. Texcoco Transit System Management Complete- Transit System Management Complete- Transport Planning Complete- Ave. Centrall Bridges Supervision Complete- Ave. Central Induced Works Supervision Complete- Geotechnical and Paving Designs Consulting Complete- Ave. R-l Works Supervision Complete- Drainage Consulting Complete- Paving Management Complete

39

- Toluca's Integral Study I Updating Complete- Toluca's Integral Study 11 Updating Complete- Via Lecheria-Cuautitlan Supervision Cancelled- Ave. Ceylan Reconstruction Supervision Complete- Ave. Toluca Works Supervision Complete

The Project visualized the implementation of studies supporting policy definitions on issuesarising from situations related to the management of the urban transport system. Accordingly, theauthorities of the Government of the State of Mexico conducted, during the indicated years, thefollowing studies:

STUDY DATEPlanning (1) 1988 - 1990Main Transport System Maintenance (11) 1988 - 1989Road Maintenance (111) 1988 - 1989

The purposes of the Planning study (I) were to:

* Define the short, medium and long term needs for infrastructure and transport equipment.• Define, evaluate and propose the short term measures to reorganize the collective transport

system, taking into consideration physical, tariff and management aspects.* Define on a general level a low cost short term action plan for traffic operation and its

application to two zones and five public roads as a pilot project in the area of ValleCuautitlanTaxcoco.

The Main Transport System Maintenance (11) study proposed:

The design and management of the maintenance program for buses previously owned andoperated by the State Government Administration, improving utilization procedures andequipment maintenance.

The Road Maintenance (111) study proposed to:

- Establish maintenance service directives to be implemented through a MaintenanceManagement Integral System (SIAM) to assist in monitoring the conditions of paved roads,the evaluation and selection of projects and in providing routine services through amaintenance and rehabilitation program.

* tdentify a group of maintenance projects in the roads system for the provision of services inthe medium term and make recommendations for paving design based on field observations.

The studies produced the following results:

* State government areas in charge of planning, roads maintenance and traffic managementwere strengthened through technical assistance financed by the project.

* Policies attending the needs of the metropolitan area were established by governmentauthorities of the of the State of Mexico and the Federal District and within

40

intergovernrnental coordinating agencies, suchi as the Metropolitan Area TransportCommission (COTAM).2

* Agreements were reached for the creation of metropolitan routes for public transportationservice.

* Important steps were taken to strengtiheni mass transport to the State of Mexico, which waslagging behind the Federal District (D.F.) and during 1995 a competitive bidding wassolicited for a lighit train whiich would be operated by the private sector, in contrast to thegovernment run operations in the D.F.

* Steps were taken to officially approve the passenger transport service fares for the State andthe D.F. metropolitan area.

* Procedures were established for the adjustment of fares according to transport costs and userspurchiasing ability.

* The Paving Maintenance Management Integral System (SIAM)was created within the RoadsCouncil of the State of Mexico (Rehabilitation projects tilat were completed under theactivities and works program, 1994-1998, took into consideration tlle designrecommendations of the roads serviceability maintenance studies).

* A technical nucleus was created within the Roads Council which has made use of SIAM forthe everyday tasks of the Council. The government of the State of Mexico (GEM) hasbecome the first local government with improvements in the modern management of roadsmaintenance.

With regards to objective II:

The following activities were implemented withlin the scope of institutional capacity developmentfor entities connected with urban transport:

Component "C"

The section of the bank in charge of credits for the Urban Transport System was strengthened.This allowed, with support from Technical Assistance to BANOBRAS as provided for inComponent "C", the completion of the following tasks:

* Conduct di agnostic studies in the country's medium size cities (San Luis Potosi,Coatzacoalcos-Minatitlan-Merida, conurbation of Torre6n-G6mez Palacio-Lerdo, Tampico-Ciudad Madero-Altamira) and comprehensive studies in the cities of Chihuahua and CiudadJuArez, which included BANOBRAS participation and additional support from 15 studiespreviously completed by SEDUE (now SEDESOL).

* Outline a national policy on the urbari transport system. Set the program parameters toservice the urban transport system of Mexico's medium size cities for negotiations withIBRD. Likewise, with the assistance of specialized consultants and local authorities andunder BANOBRAS coordination, all projects with works identified in the comprehensivestudies for the cities of Le6n, Ciudad Juarez and Toluca for IBRD funding were prepared aspart of the negotiated conditions of the UJrban Transport for the Medium Size Cities Project

2 In spite of existing metropolitan area action coordinating agencies, the experience of undertaking isolated planningefforts by individual governments made more evident the need to create a metropolitan service strategy. This led to theimplementation in 1996 of the first metropolitan focused planning work and the ZMVM Transport and Air QualityIntegral Strategy that was conducted by the Roads anci Transport Metropolitan Commission (COMETRAVI) whichreplaced COTAM. This study, partially funded byCR-2824-ME and the Japanese Trust Fund 029369, established a decision making model that allows, throughdetermined policies for public transport development, the finding of transport resource combinations that satisfypassenger and freight demand and keeps air contamination produced by traffic within health safety parameters.

41

* Provide technical assistance to eligible borrowers on the different programs and respectiveactivities implementation, as well as follow-up and control of credit procedures, paymentsand corresponding record keeping

* Provide support, during the years 1996 and 1997, for the preparation of the Second UrbanTransport and Air Quality Project with a metropolitan vision. This resulted in theidentification of a transport and air quality integral strategy supported by nine sub-sectorialstudies (See Annex 2.5)

* Complete the Urban Transport Enterprise Support Model. This will be part of BANOBRASassistance to borrowers (transport concessionaires) from the Urban Transport FinancingProgram

Creation of areas at the federal level with greater participation in the urban transport sector, whichconstitutionally is under the responsibility of local authorities. These functions are currentlyperforned by SEDESOL through the General Administration for Urban Infrastructure andEquipment (Direcci6n General de lnfraestrmctura y Equipamiento). With the participation of thisAgency, it was possible to disseminate important documents related to the design of roadprojects, projects evaluation and road maintenanice projects at the national level. In addition,training workshops were conducted at the national level for municipal authorities, and wereincluded in educational programs of different institutions of higher education.

Components "A" and "B"

Institutional strengthening activities were conducted only in component "B" where progress wasmade in the strengthening of the State of Mexico's Road Council through the implementation ofSIAM (Sistema Integral de Administraci6n del Mantenimiento). Technical assistance in areas oftraffic management and transport system planning was undertaken by the General Administrationfor Road Services (Direcci6n General de Vialidad) of the respective government.

Component "D"

Important progress was achieved with the incorporation of the environmental component inprojects implementation and evaluation. In this sense:

Project components were modified to include Component "D", which had the fundamentalpurpose of strengthening monitoring of environmental contamination and control capacities underSEDUE and the Federal District Department and also the development capacity of the MexicanInstitute of Petroleum and PEMEX through which the following is taking place:

* Research for the improvement and production of less polluting gasoline and the study ofvehicular emissions with the purpose of establishing applicable standards to the region;

* Purchase of equipment to monitor air pollution in the metropolitan zone of Mexico City; and* Replacement and installation of 1,200 pollution free engines in public transport service buses

(amendment to loan and guarantee agreements dated 22 February 1989 and I July 1990).

With regard to Mexico's urban transport system, this has been operated, in its majority, by theprivate sector. Only in the last two decades, has the public sector had a greater participation inthe creation of a municipal transport enterprise (Route 100) to serve Mexico City. This venture isalready defunct and the services went again to the private sector.

42

The State of Mexico used to operate a Main Transport. System (SST), managed by the StateGovernment, which provided services to 10%/o of the transport market demand and basicallycovered marginal areas. Due to high subsidies required, the State Government decided toprivatize the services.

The operation of the Urban Transport System is, without a doubt, a big challenge for authoritieswitlh planning and regulation responsibilities, particularly in a city the size of the ZMCM. Thesystem improvement requires changes that can only happen gradually and through theinstitutional strengthening of the diverse participating agents. In this sense, the First UrbanTransport Project was initially focused oni strengthening the local and federal authority levels.

IMPORTANT FACTORS THAT AFFECTED THE PROJECT

The project disbursed important amounts of funds allocated to components A, B, C and D.Nevertheless, it has been difficult for local governments to have financinig capacity since theysaw their investment possibilities reduced in a period of strong economic imbalance, mainlyinflation and recession, which distorted public finances. In Component "A", the government ofthe State of Nuevo Le6n decided to cancel their allocations so they could focus their attention toother needs; and in Component "B", the State Government had to finance BANOBRAS' localcontribution, thus becoming a co-lender of the project.

Local governments had little experience in the management and requirements of credits from theworld's banking sector. Because of this and also due to shifts in government authorities,particularly within the Government of the State of Mexico (GEM), the project was barely activeduring the first four or five years. Consequently, a strong promotional campaign by BANOBRASwas necessary to gain GEM's greater participation in the project, with results beginning in 1994.

In Component "B" the government obtained a strong financial commitment for the transportstudies that in our opinion were not conducted in adequate measure nor did they respond to themost immediate needs of GEM, and this limited the preparation of the final engineering project.An example of the mismatched actions is the studies for the maintenance of autobuses managedby GEM which were PRIVATISED simultaneously with the culmination of the study, thusreducing the utility of the study..

In our opinion, pro jects and works identified eas the most important by previous studies shouldhad been completed. At the same time, an in-depth study on the development strategy of theurban transport system should have been conducted. The study could have identified thesystem's strengths and weaknesses and also, suggested a policy for sector improvement while atthe sa.ne time establishing the participation and responsibilities of institutions involved intransport system management. The study could have put emphasis on investment recoverypolicies which have been neglected by integral studies. Integral studies mainly focus on theeconomic evaluation of projects and ignore recovery and financial evaluation methods.

There is the idea that the process management and requirements and formalities at the WorldBank are complicated. This starts with the time it takes for preliminary considerations andnegotiations to include the request in the credits program of the federal government and isfollowed by IBRD exploratory missions, preparation of the project, its evaluation, its presentationto the Board of Directors, the authorization, the signing and the fulfillment of the effectivenessconditions that, among others, normally are part of the final steps in the process.

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The loan was for a pilot program designed to be applied specifically to two importantconurbations, Valle CuautitlAn Texcoco and the metropolitan area of the city of Monterrey.Initially neither IBRD nor BANOBRAS had the experience in financing this kind of project. Theimplementation's rigidity, applicable to only two cities, did not allow requests from other mid-size cities that could have been assisted while the specific credit provided for in Component Cwas being prepared.

During the first five years, government officials in charge of the project were often changed dueto political changes in government at the state level, particularly in the State of Mexico. Only themost recent administration became fully committed to the project working with nearly 70% of theremaining balance of external resources allocated to the component.

Units in charge of the technical management of the project initially had importanit technicaltraining support. Later, due to restrictive policies on government expenditures, personnel wasreduced and technical employees already trained were lost. This resulted in a diminishiedcapacity to conduct the program. On the other hand, lack of incentives did not permit theretention of trained employees.

The final engineering projects, in spite of careful preparation, were not fully satisfactory withregards to technical aspects of integral solutions for "ancillary works" in critical urban zones dueto the unexpected finding of many installations, which complicated the process for the rights ofway. This was an important factor to delay the execution of works since they related to theprotection of installations like PEMEX gas pipes, telephone lines, railroad crossings, high voltageelectrical lines and water and sewer installations. This occurs because of the short period of timethat government administrations had to develop infrastructure development policies, whichreduced the time for offers made to consultants to complete the projects in addition to theprocesses to be completed with different government or private agencies to identify the site andlocate the services of the ancillary work projects.

Another aspect considered important for project execution was the payment system for workestimates and price ranges due to the centralization of IBRD requirements and formalities toobtain the "no objections" for contract procedures, expansions, modifications, etc.

It is important to mention the tariffs applied to toll roads, particularly the section LaVenta-Chamapa, where the high price scared away the users which resulted in very little or almost norentability from its operation (see Annex 7, Table 2). The solution is in making a realisticanalysis of the operation and maintenance costs of the toll road, and also a socio-economicanalysis of users payment affordability in order to establish attractive tariffs for its use. On theother hand, support from federal or state governments should be considered the for the absorptionof investment costs for the construction of the freeway.

THE BANK'S (IBRD) PERFORMANCE

The Bank's performance with regards to conceptualization, identification and assistance toprepare the project was satisfactory. It allowed the formulation of credits with enough elementsfor the analysis and attention to urban transport problems, which by themselves are verycomplicated. Supervision has been highly satisfactory and mission visits contributed to resolvemany problems. Special mention is to be made of IBRD's participation in financing thereconstruction of the road infrastructure of the city of Monterrey, which was destroyed in 1988 byhurricane "Gilbert".

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The project permitted to see with clarity the value of its conception but also the difficulty of itsimplementation, some of which were mentioned in "Important Factors that Affected the Project"suclh as the resistance to change shown by sector participants, which was motivated by specialinterests or lack of know-how for their implementationi.

We always counted withi IBRD's support to facilitate the procedures related to "no objections",invitations to bid, contract amendments, etc. In spite of this, the approvals take too long. Wethink that in order to expedite the procedures some functions could be transferred to financialagents, specially now that said procedures are already regulated by the Controller's andAdministrative Development Secretariat (SECODAM).

THE BORROWER'S PERFORMANCE

The Communications and Transport Secretariat of the Government of the State of Mexico(SCTEM) as well as the Transport Commission of the State of Mexico (COTREM) and otherparticipating authorities provided their unconiditionial support to execute all activities conducive tothe implementation and control of the project. To achieve this, follow-up procedures wereestablished through "progress review meetings" presided by COTREM executives, the RoadsCouncil, Roads Adrninistration, Credit and Public Investment Administration, and the financeagencies of the government.

The borrower participated with its best effort and enthusiasm in the execution of activities and incapacity development programs through technical assistance received for maintenance of roads,urban transport system planning and traffic management. However, personnel reduction policies,as a consequence of the country's economic deterioration, resulted in more work for a personnelalready reduced and less efficiency in processes linked to the implementation of the project.Under such conditions the participation of these entities were satisfactory.

IMPORTANT LESSONS LEARNED

The project has highlighted the importance of the urban transport integral studies which permit tosee and focus on the activities necessary for the development, control and management of theurban transport system, to establish priorities arnong the projects and link the different activitiesin order to improve the operation of the systern. The terms of reference used to conduct thestudies on urban transport system planning vvere prepared by IBRD and this is a valuablecontribution of the international financing institution to the transport industry.

The integral study also constitute an element linking policies to be implemented, since it allowsthe continuity of activities by local authorities vvhose service lasts three years for municipalitiesand six years for state authorities.

In the same manner that federal taxes were levied for the construction and maintenance of thecountry's inter-urban transport system, it is important to create specific funds, through taxes, tosupport construction and operation of road system infrastructures in urban transport.

BANOBRAS, and governments involved in the metropolitan area, considered that it is importantto count on IBRD financing to attend the area's Urban Transport System covering the wholemetropolitan area. Irnportant studies on Transport and Air Quality Strategy have been conductedwhich have allowed the identification of guidelines for the formulation of policies to provideservices to one of the most populous areas in the world. Also, funds from CR2824-ME,

45

component "C" , have been diverted to support studies and as a supplement to resources thatIBRD diverted for these purposes from the Japanese trust Fund No. 029369.

It should be mentioned the wealth of experience gained as a result of the exchange of ideas,bidding processes for public work contracts and goods acquisition, as well as bid invitations forthe provision and contract of consulting services.

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