D of

The World Bank

FOR OmCLAL tSE ONLY

AA/ -Z 7 "7/-V

Rqpit No. P-6233-NE

ElORANDUM AND RECOMMATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EESCUTIVE DIRECTORS

ON A

PROPOSED WAL

IN AN AMNT EQUIVALENT TO US$350 ML-ION

TO

BANCO NACIONAL DE OBRAS Y SERVICIOS PUIBLICOS

WITH THE GUARANTEE OF THE UITED MXCAN STATES

FOR A

SECOND WATER SUPPLY AJD SAITATION SECTOR PROJECT

NAY 16, 1994

MI CROGRAPHI CS

Report No: P- 6233 MXType: MOP

This docueut has a restricted distribution ad may be osed by reclpients oly in the perfornce ofteir official duties Its conten may not othebise be disclosed witbout World lank ahoriation .

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRECY EQUIVALEm

curreny unit Peso (M.x$)US$1.00 3.3 P (a ofMay 1, 1994)

ISCAL YEAR

January 1 - December 31

UNllS OF WEIGHTS AND MWASURES

Mrc US Equvln

maer (m) 3.28 fet (ft)Ioneter (km) = 0.62 mle (nl)

1 kilogram () - 2.20 poun (hb)metric ton (m ton) 2205 pounds

I liter ( 0.264 USg aIIn(pl)I hwtb @a) m 2.47 scm

ABBREVIATIONS AND ACRONYMS

BANOBRAS Natxial Devopment Bank for Pubic Work and Servimes (BancoNadonal do Obms y Srviios Pdblcos)

DOT Build, Operate and TrnerCETES Mexican Govenmens Treur Bils (C erficados de I Tesorefa

de I Nacidn)CNA Nonal Water (Comisida Nacina del Agua)CONAPO Nationl Popuyati Committo (Comin Nacioa do Palcifn)CONSOIDACION Tecnia A tnce for the development of Water UtilitiesEAS Association of Water UtlitiesECU _ui Co UiEIA Environmental ImpactsmmnEIS E rm t SaementICG inten cash GeneratonJMTA Mexican IntitUte of Water Teclmhnoog (nsto Meuice do

Tecnologfa del Agua)INE notite for EnvIonmenta Prdtectio (sito Nacional do

3cologfa)MU Memorandu of UndandinMIS Management Infonnation SystemNPWS Natial Program for Water and SewmNPWQI Nationl hogram for Wate Qualiy ImprovematPOA Anul Opatonal PlanSAIRH Secretaiat of Agricuanr and Hydalc Resourzc (Soretari do

Agricum y Recuso H U)idico)SEDESOL Minidsy of Social Development (Secrerh de Desarrollo SociaSHCP Secretriat of Finance and Public Credt (Secretaa do Hacea y

Cr&lito Pdblico)JPA General Infomtion System for the Wae and Sanitatio Sectr

(Sitew do i6foma pam Agua Potable y Ak_cant ado)SOUDARIDA The Goverment Poverty Alleviation ProgramSWSS Stato Water Suply nd Santon Stubcommite (uomd do Agua

Potable y Saneaeto)TA Tecbnical As _sinceWUs Autonomous Water Utilties and Opeating Agencis

FOR OFFICIAL USE ONLY

MEXICOSECOND WATER SUPPLY AND SANITATION SECTOR PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Banco Nacional de Obras y Servicios PTblicos(BANOBRAS)

Guarantor: United Mexican States

Executing Agency: BANOBRAS, Comisi6n Nacional del Agua (CNA), andAutonomous Water Utilities (WUs)

Beneficiaries: Autonomous Municipal and State Water and SanitationUtilities

Amount: US$350 million equivalent

Terms: Repayment in 15 years, including 5 years of grace,with interest at the Bank's standard variable rate

Financing Plan: (US$ million)Local Foreign Total

IBRD 350.0 350.0Government of Mexico 185.0 185.0State Grants 120.0 120.0WUs Internal Cash

Generation (ICG) 115.0 115.0420.0 350.0 770.0

Economic Rateof Return: 12% ERR: minimum return required for water and

sewage projects

Staff AppraisalRepori: Report No. 12340-ME dated May 13, 1994.

Map: IBRD No. 25397

Poverty Impact: For water utilities located in municipalities of less than80,000 inhabitants, federal and state grant funds wouldbe allocated based on the Poverty Index.

This docament has a resticted distribution and may be used by recipients only in the pefomance Of 6official duties. Its contents may not othawise be disclosed without World Bank authoizatio.

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENTOF THE IBRD TO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TO BANCO NACIONAL DE OBRAS YSERVICIOS PUBLICOS

FOR A SECOND WATER SUPPLY AND SANITAON SORPROJECT

1. I submit for your approval the following memorandum andrecommendation on a proposed loan to Banco Nacional de Obras y ServiciosPublicos (BANOBRAS) with the guarantee of the United Mexican States for theequivalent of US$350 million to help finance a Second Water Supply andSanitation Sector Project. The loan would be at the Bank's standard variableinterest rate, with a maturity of 15 years, including five years of grace.

2. Background. In Mexico, water resources are unevenly distributed.Average rainfall ranges from 100 mm/year in the dry zones of the North to5,000 mm/year in the tropical lowlands of the South. In addition, while 70%of the population and 80% of the country's industrial plant are located above theelevation of 500 m, only about 15% of the country's surface water is above thatelevation. Moreover, a significant number of aquifers are being depleted andsevere pollution has threatened and reduced the use of many nrvers and othersurface bodies of water. Municipal water supply, the main subject of theproposed project, accounts for about 11% of the country's total demand forwater resources. The lagest water user in Mexico is agriculture, accounting forabout 80%. Industry accounts for only about 7%, with other uses accountingfor another 2%.

3. Overall, water supply and sanitation services have improved during thepast three years, following a decade of stagnation in the 1980s. In 1992, 84%of the population had access to piped water, compared to 70% in 1980. Duringthe same period, access to sewers increased from 49% to 67%. In spite of thisprogress, services are still inadequate, and significantly below comparablecountries in Latin America. Furthermore, the problem of insufficient coverageis aggravated by poor water quality. Largely as a result of this deficiency,gastro-intestinal diseases are still one of the principal causes of morbidity andinfant mortality.

4. For the first time in Mexico, the current administration has establisheda coordinated legal, policy and institutional framework within which to managethe country's scarce water resources. As a result, Mexico now has a wellconceived water management policy which is presented in a government policystatement issued in support of the proposed project. This policy is consistentwith the Bank's operational policy guidelines on water resources management(OP 4.07) and its recent water resources management paper. Mexico's policyis based on the following elements: (a) integrated water management based onthe development of river basins; (b) water pricing aimed at improving theefficiency of water use and the implementation of tariffs that cover costs andreflect scarcity values; (c) decentralized, efficient and financially-sound waterutilites (WU) at the local level, together with greater participation of

2-

communities; and (d) protection of the environment through: (i) incentivepolicies, such as pollution charges; (ii) expanding water and sanitation coverageto the poorest segments of the population; (iii) restoration and preservation ofecosystem and groundwater resources and regulation of extraction; and (iv) strictenforcement of environmental regulations.

5. Significant progress has been achieved on the legal front. Two importantnew laws, the National Water Law and the Federal Water Charges Law, werepa3sed in December 1992 and October 1991, respectively. The National WaterLaw provides for the development of water markets, private sector investmentand water conservation. It also better defines water property rights, includingconcession renewals for periods of up to 50 years, and provides for changes inwater use and the transfer of concession titles without p-ior governmentapproval. The National Water Law also mandates the creation of "river basincouncils" (consejos de cuenca), composed of government and user grouprepresentatives, to coordinate and manage water resources in an integratedmanner. Furthermore, the law establishes that concessions for water anddrainage systems can be granted to the private sector. The Federal WaterCharges Law defines the charges to be applied to the consumption or extractionof federal watvrs, to the use of public infrastructure and to wastewaterdischarges. An existing law, the General Ecology and Environmental Law,passed in 1988, contains important provisions for the preservation of waterquality.

6. Major efforts have already been made by the Government to improve theefficiency of the sector's institutional framework. Amendments to the MexicanConstitution, made in 1983, assigned to municipalities the responsibility for theprovision of water supply and sanitation services. The majority are organizedas autonomous WUs1, however, some municipalities still manage their waterservices directly, together with other services. Most of the states also operatesome autonomous WUs. They operate small water systems for severalmunicipalities in order to take advantage of economies of scale when individualmunicipalities are too small to run their own systems efficiently. The NationalProgram for Water and Sewerage (NPWS), financed by the ongoing watersector loan, supported the development of financially autonomous municipal andstate water utilities (WUs).

7. The federal secretariat responsible for water resource management, isthe Secretariat of Agriculture and Hydraulic Resources (SARH) which operatesthrough its agency, the National Water Commission (CNA). The SocialDevelopment Secretariat (SEDESOL) is responsible for the issuance of theofficial Mexican water norms and the evaluation of environmental impactassessments (EIAs). All other aspects of water management, including theenforcement of water effluent and environmental standards, are handled by

1. A WU is classified as autonomous if it has its own separate legal identity, its finances areindependent of the municipality or the state, it has ownership of all its assets, propercommercial accounting and auditing, and a Board of Directors with final legal authority tomange its operation.

- 3 -

CNA. CNA has delegated to the Mexican Institute of Water Technology(IMTA), which is also under SARH, the design and implementation of theNational Training Program for the sector. The creation of CNA in 1990, madepossible a full integration of all aspects of national water resource managementwithin one agency. To help coordinate federal and state activities in the sector,State Water Supply and Sanitation Subcommittees (SWSS) have been created inall the states. The SWSSs represent all sector-related federal and state agencies,and are the focal point for sectoral planning at the state level.

8. The main challenges facing water resource managemernt in Mexico willcontinue to be the implementation of existing legislation, the effective devolutionof responsibilities to the states and municipalities, the implementation of riverbasin management, a more effective use of incentives and other indirectmeasures for pollution control, and encouragement of community participation.To meet these challenges, the CNA has prepared the National Program forWater Quality Irlprovement (NPWQI). This program aims at: monitoringwater quality and assessment; development of effluent standards and dischargepermits; strengthening of the financing system; development of sanitation andtreatment infrastructure; better management of river basin pollution; andstrengthening the sector's institutional capacity, with emphasis on enforcementincluding reliance on a credible self-repordng system for industries within boththe public and private sectors. The strategy under NPWQI is based on theconcept of integrated water management and it includes prescrbed actions,quantitative goals and estimates of investment needs. This program is fullysupported by the proposed project.

9. Rationale for Bank Involvement. The proposed operation is consistentwith the Bank's Country Assistance Strategy (CAS) for Mexico to be presentedto the Board with the Northern Border Environment Project (eport No. 6287-ME) on June 9, 1994 in parallel with this project. The stategy aims at assistingMexico to keept its economic restructuring process on track, while supportingprograms that contribute to poverty reduction, improved environmentalmanagement and long-term sustainable economic growth and development,particularly through investments in human resources, infrstrucre and naturalresource management. The strategy also aims to push the reform processdownward to the subnational (state and municipal) level and support the furtherdevolution of expenditure and revenue responsibilities to these localgovernments. Working within this strategy, the proposed project is specificallyaimed at developing capacity to supply water and sanitation services, addressingenvironmental issues, at the local level, increasing services to the poor andprotecting the country's scarce water resources. By providing technicalassistance for the formulation of a well-defined regulatory framework, theproposed project also aims to promote a larger private sctor involvement in thesupply of water and sanitation services. The Bank's past involvement in thewater sector, puts it in a unique position to strongly support the ongoing processof decentalized water utilities, focusing on better management practice,improved water and sanitation service delivery and greater attention to waterpollution problems.

-4 -

10. Project Objectives. The objectives of the proposed project are to: (a)improve the quality and expand the coverage of water and sanitation services;(b) strengthen the institutional capacity of CNA to comply with its legal mandateto assist local water utilities (WUs) improve their operating and plamingcapability, and train their personnel to properly manage and maintain theirsystems; (c) reduce subsidies- to the sector b- promoting the development ofadequately sized WUs that are operationally and financially autonomous; (d)strengthen BANOBRAS' capacity to appraise and supervise sub-projects at itsMexico City headquarters and, especially, at its state offices; (e) encourageprivate sector participation by establishing the appropriate legal and technicalframework to attract private investment; (f) improve the management of waterresources and the environment by supporting water quality programs; and (g)strengthen the sector's capacity to enforce environmental regulations and carryout EIAs.

11. Project Description. The project would have three main components:(a) strengthening of the major federal institutions that play a key role in themanagement of water resources; (b) supporting the investment/operational plansof WUs; and (c) strengthening the WUs to make them viable and sustainableinstitutions.

12. Strengtening the Federal Agencies (USS 33.7 million). Under thiscomponent technical assistance would be provided to strengthen the capabilitiesof CNA, IMTA and BANOBRAS to provide assistance to the WUs, to evaluateand supervise the implementation of subprojects, to manage water resources andto develop cost-effective po!icies to prevent water pollution.

13. The Investment Support to Local Water Utilities component (US$722.8mii;on) would provide credit to autonomous WUs to fund subprojects in fullcompliance with agreed eligibility criteria related to the technical, financial andoperational viability of the WU and the subproject. Subloans could also be usedto assist public companies to subcontract services to the private secto; byfinancing start up costs. In order to become eligible for Bank financing underthe project, WUs would need to prepare master plans covering their investment,organizational and financial plans over a seven to ten year period. The actionsto be takn in any one year would be recorded in an agreed Memorandum ofUnderstanding (MU). The types of subprojects expected to be financed include:(a) expansion and rehabilitation of water supply and distribution systems suchas: (i) surface water intakes; (ii) raw water pump stations; (iii) wells; (iv)storage tanks; (v) transmission mains; (vi) filtration plants; (vii) disinfectionfacilities; (viii) booster pump stations; and (ix) piping distribution networks; and(b) expansion and rehabilitation of wastewater collection and treatment facilitiessuch as: (i) laterals; (ii) trunk sewers; (iii) pump statons; (iv) primary,secondary or advanced wastewater treatment plants; and (v) discharge outalls.This infrastruchte component would also include engineering for thepreparation of detailed design documents and construction supervion.

14. Institutional Suport for the WUs (US$13.5 mMion). Under thiscomponent, technical assistance would be provided to WUs which do not

-5-

comply with the eligibility criteria and, therefore, cannot be included within theinvestment support to WUs component. Techiical assistance under thiscomponent would be onented to helping the WUs become ligible, and hencewould be limited to: (a) preparing master plans; (b) preparing EnvironmentalImpact Assessments (EIAs); and (c) implementing cetain institutionaldevelopment programs, with particular emphasis on commercial and financialareas including tariffs, water metering and reduction of unaccounted-for-waterlosses. Most of the funds for this component would be provided as grants.

15. Project Costs and Filnancing. Total project cost is estimated at US$770million. Financing for institutional development support for the federal agencies(US$33.7 million) will be channelled through BANOBRAS. Financing forinvestment support to Local Water Utilities (US$722.8 million) would be basedon a combination of Bank loan and government (federal and state) grant fundsalso channelled through BANOBRAS. While the precise proportion ofgovernment grant funds will depend on the level of income and population ofthe states and municipalities in which the WUs are located, a provisionalMdicative estimate has been made. On average, the following proportions areexpected: loans from BANOBRAS, 45 %; internal cash generation from theWUs, 15%; federal grnts, 25%; and state grants 15%. The institutionalsupport to the local WUs (US$ 13.5 million) will be financed by state andfederal grants (from 70% to 100%) with the difference being linanced under theproposed loan as a loan from BANOBRAS. All imvestments financed by loansare expected to be recovered through water and sewage fees and additionalinteral cash generation due to increased effliciency of the WUs. Estimatedproject costs and the proposed financing plan are provided in Schedule A.

16. Up to 10% of the total loan would be eligible for retoacive financingto ensure continuity of technical assistance and infrastructure investments as allfunds from the ongoing water supply operation have been committed. Allretroactive financing would be in accordance with Bank guidelines and wouldapply to expenditures incurred after July 7, 1993.

17. Project bnplementation. The Borrower and executing agency for theproposed project would be BANOBRAS, which will be reonsible for overallproject execution. CNA, as the government agency responsible for the watersector, will serve as the technical agent. The WUs will be the main executorsof the subprojects approved for financing under the proposed loan. The smtegovernments will allocate the grants to the selected subprojects. CNA will beresponsible for ensuring that a judgement on the preliminary ElAs prepared forsubprojects under consideration is issued and that additional ations, as requiredin connection with the subprojects (such as the need to issue an EnvironmentalImpact Statement), are taken.

18. BANOBRAS, in order to better coordinate, supevise, and monitor allwater and sanitation projits that it finances, would appoint a Task Manager,who would work within the newly created Executive Coordinating Unit (ECU),using the resources of the existing division in charge of Financing Potable Waterand Sewerage Projects. Operating regulations have been designed to guide

-6 -

project implementation and monitoring. Support to the federal agencies wouldbe implemented by the respective federal agencies. Master plans would be theresponsibility of the WUs. CNA would be available for advice. Eachsubproject would have its own financing, cost recovery, and implementationscheme in accordance with agreed criteria. Performance indicators for thesector were developed during appraisal. In addition, performance indicatorswould be developed for each WU in their respective master plans. Theseperformance indicators will be monitored by CNA, BANOBRAS, and byBank/Government missions in the context of semi-annual and mid-term reviews.

19. Project Sustainablilty. By strengthening the sectoral framework forwater resources management as well as the local institutions that deliver waterand sanitation services, the project is expected to contribute to a sustainableinstitutional development process. This is reinforced at the local level byrequiring a minimum internal cash generation as part of the financing plan ofthe WUJs, in addition to a minimum rate of return of 12% for each subproject.

20. Lessons Learned from Previous Bank Involvement. Bank involvementin the water supply and sanitation sector started in 1973 with the approval of thefirst water supply loan. To date, six loans have been made amounting to aboutUS$675 million. The only ongoing project in this sector, (Loan 3271-ME,US$300 million, 01/18/1991) is 95% disbursed and 100% committed. It isexpected that this project will be completed and closed by mid 1994, two yearsahead of schedule.

21. The key lessons learned from the previous operations in Mexico, whichhave been taken into account in the design of the proposed project, may besummarized as follows: (a) the preferability of having one agency take theleadership role; (b) the importance of subproject design and preparation; (c) thedesirability of decentralized decision making and greater participation ofbeneficianres; (d) the need to have adequate supervision from BANOBRAS andCNA; (e) the need to give the beneficiaries a real sense of ownership of theproject; and (f) the importance of coordination among the various agencies.

22. Actions Agreed. During negotiations, agreement was reached on thefollowing main conditions: (a) eligibility criteria for the participatingautonomous WUs and onlending conditions; (b) indicators to measure projectimplementation and impact; (c) reporting schedule and semi-annual reviews; (d)timing of the project mid-term review; (e) a methodology regarding theprocedure to verify and implement the EIA process; (f) schedules for reporting,with quantitative indicators including status of river basin studies and the statusof the national targets to increase the volume of treated wastewater; and (g)annual reviews of the national program for training in the sector.

23. Conditions of loan effectiveness would be that: (a) the Guarantor andBANOBRAS shall provide the Bank an executed contract, satisfactory to theBank, descrbing the Guarantor/BANOBRAS transfers and relending procedures;and (b) BANOBRAS shall have (i) the MIS fully operetional; and the ExecutiveCoordinating Unit (ECU) legally established.

-7 -

24. Environmental Aspecs. The proposed project, which is a category Bproject, would help improve evironmental conditions in the prqect areas byreducing water pollution and minimizing the danger of water-related diseases.It would assist Mexico in improving its water pollution control policies byproviding CNA with added capacity to develop pollution oontrol strategies, tomonitor water quality and to enforce environmental regulations. Each WU'smaster plan would contain a preliminary E1A for all the aetivities proposed.Prior to funding, individual investments would be recorded in the annualMemorandum of Understanding and would have ELAs in accordance withexisting SEDESOL guidelines. The current legislation also allows for thepossibility of dispensing with an EIA by submitting a prior notice demonstratingthat the activity in question will not cause negative environmental impacts, orexceed the limits and standards defined by technical regulations.

25. Intenational waterways. Mexico shares intenaional waterways withBelize, Guatemala and the United States. Interational waterays as defined inOD 7.50 include not only rivers or other bodies of waters that form a boundarybetween countries but also rivers or bodies of surface waters that flow throughtwo or more states and tributaries or other bodies of surface water that are apart or a component of any such waterways. The proposed project is nationalin scope and under its investment component local improvements in watersupply treatment and sanitation may be financed through subloans in areas thatcould affect Mexico's international waterways. While both the Mexicanauthorities and the Bank belies -at, because of the nature of the project, theseimprovements would only have beneficial effects, if any, on other riparians, itis too early to determine the possible impacts on neighboring countries until theactual imvestments have been identified and appraised. After discussion of thismatter with Mexico, and at the request of Mexico, it was agreed that the Bankwould inform the neighboring countries of the proposed project, which wasdone.

26. Official communications from each of the three neighboring countieshave been received. In light of the procedures for selection and appl ofsubprojects to be financed under the proposed loan, as well as the expectedbenefcial effects of such subprojects on the affected waterways, Belizeexpressed its full support for the project. The United States encouraged theBank to continue with the preparation of the project and stated that it wouldreview the project at the time of its presentation to the Exeutive Directors.Guatemala said it would assure itself dtrough its bilatl treaty arrangementswith Mexico that the interests of both Mexico and Guatmala will be protctedwith respect to subprojects. In light of these statements, no special provisionsfor subprojects that may affect teational ter*ays with Belize, Guatemalaand the United States have been included in the project documents. (Copies ofthe responses of Belize, Guatemala and the United States are attached as Annex1,.

27. Progam Objective Category. By imprving the operions of waterutilities at the local level, the project is expected to etend coverage of basic

-8 -

water supply and sanitation services to the poorer areas of the communities thatthese utilities serve. As a result, the quality of life in these poorer areas shouldimprove substantially. The project is also aimed at encouraging private sectorparticipation by establishing the appropriate legal and technical frameworkwithin which to attract private investment.

28. ProJect Benefits. Improved water quality can be expected to contributeto the control of cholera and significant reductions in other gastro-intestinaldiseases, which are especially prevalent in the poorer areas of Mexico. Theproject is expected to uirectly benefit about 10 million people. In addition, theproject would: contribute to the ratonalization of sector investments; promotewater conservation through the implementation of more rational tariffs and thereduction of unaccounted-for-water losses; stimulate intemal sector savings;reduce the sector's dependence on Government funding; promote the adoptionof cost-effecdve policies to achieve environmental improvements; and encourageinvestment in human resources in the environment field.

29. Project Risks. The technology involved in the proposed investments andthe required technical assistance do not pose any unusual risks. However,continued ieform of sector policies and institutions is a complex undertakingwhich is subject to various political and other changes. Although major reformmeasures were taken under Loan 3271-ME, the following risks remain: (a)inadequate counterpart funds due to Government delays in distributing itsrevenue-sharing contribution to the states and municipalities; (b) failure to givethe beneficiaries a real sense of project ownership due to pressures from a morepolitically powerful CNA and SEDESOL; and (c) lack of coordination betweenother federal programs, such as SOLIDARIDAD, dtt may introduce policychanges affecting overall implementation of sector policies agreed to in thecontext of the project. The frm commitment shown by Government in the

eparation of this project and its track record in this and other sectors givesconfidence that whatever problems that arise in implementation can beovercome.The curent design of the proposed project, including the agreementsreached with the Government, also reduces these risks to a minimum, acceptablelevel.

30. Recommendation. I am satisfied that the proposed loan would complywith the Articles of Agreement of the Bank and recommend that its ExecutiveDirectors approve it.

Lewis T. PrestonPreident

AttachmentWashington, D.C.May 16, 1994

-9 -

Schedule AMexico

Second Water Supply and Sanitation Sector ProjectEstimated Project Costs

(US$ Million)

Component Local Foreign Subtot.* % ofTotal

I. Strengthening Sectoral Federal Institutions

CNA 4 5 16.4 20 2.7Institutional Strengthening 0.9 1.5 2.4 0.3Technical Assistance to WUs 0.9 5.0 5.8 0.8Water Quality Program 2.7 9.9 12.7 1.6

IMTA 0.5 6.6 09Institutional Strengthening 0.3 1.5 1.9 0.2Technical Assistance to WUs 0.2 4.5 4.7 0.6

BANOBRAS 1Z9 1.2 31 0 Institutional Strengthening 1.9 1.2 3.1 0.4

Subtotal I * 7.0 23.6 30.6 4.0

II. Investment Support to Local Water Utilities

Water Supply & Sewerage Works 313.0 301.1 614.1 79.8Studies and Design 21.9 21.1 d3.0 5.6

Subtotal Il * 334.9 322.2 657.1 85.3

III. Institutional Support for Water UtilitiesPreparation of MPs & ElAs 2.1 2.7 4.8 0.6Help w/ "CONSOLIDACION" 6.0 1.5 7.5 1.0

Subtotal III 8.1 4.2 12.3 1.6

Subtotal Project Cost 350.0 350.0 700.0 90.9

Taxes 70.0 70.0 9.1

Total Project Cost 420.0 350.0 770.0 100.0

* Note: Subtotal anounts may not add exeoay due to rounding.

PROJECT FINANCING PLAN(US$ Million)

Sources of Funds Loa _rei n Total % of T

IBRD 350 350 45

Government of Mexico 185 185 24

State Grant 120 120 16

WUs' Internal Cash Generation 115 115 1S

Total Pro3ect 420 350 770 100

- 10-

Schedule BPage 1 of 2

MexicoSecond Water Supply and Sanitation Sector Project

Procurement Arrangements(US$ Million)

catgory ICB LCB O0r NSF c/ Total

Works

A. Civil Works 75.8 496.9 22.1 a/ 594.8(34.1) (223.6) (9.9) (267.7)

Goods

B. Equipment/Materials 15.5 49.0 24.0 a/ 2.8 91.3(7.0) (22.1) 110.8) (39.8)

Service and Consultancy

C. Engineering services - Master Plans & ElAs 5.3 5.3(4.8) bl (4.8)

D. Subproject design & consolidacion^ studies 23.6 32.0 56.6(21.2) b/ (21.2)

E. Consulting trainit:g & technical assistance 18.4 4.6 23.0(16.5) b/ (16.5)

tOW Project Cost 91.3 545.9 934 39.5 770.0(41.11 (245.7) (63.31 (350.0)

Noe: Fium In pwanthesse ae mut expecte to be finwe by th Dan

a/ Shopping from at least three suppliers (civil works and equipmentlmaterlals)b/ Proposals from short lists of consultants, according to Bank Guidelines for the Use of Consutantcl Not Bank financed

Fsti ed Dsbursement(US$ Millions)

, . - . - i m............ .i m .

BANK FY 1994 199S 16 1997 199 19 1Annual 0 S0l 110 100 50 10I Cum ve 0 80 190 290 340

1. Inchd diabute" d to US$5m aedibued ater 3*7, 19 and Em WUdAl itb to Spea AeWAL.

- 11 -

Schedule BPage 2 of 2

MexicoSecond Water Supply and Sanitation Sector Project

Initial Allocation of Loan Proceeds(UJS$ Million)

Project ExpendituresComponent AMlocatdon of to beDisbursement Catigony/ No. In the Loan Amount fianced

Description General Cost (US$ MUmon) 1%)

Table a/ bi

1 Equipment, materials, and civil works, 11 271.0 60for the Investment Support to LocalWater Utilities Component

2 Consultant services for preparing 11 and [i1 22.6 100design documents and for providing TAand preparing MPs to WUs

3 Equipment and materials for 1 5.9 80Institutional Strengthening of FederalInstitutions Component

4 Civil Works for the Institutional 1 0.4 80Strengthening of Federal InstitutionsComponent

5 Consultant Services for the Institutiona! I 15.1 100Strengthening of Federal InstitutionsComponent

6 Unallocated 35.0

Total for Al Categories 350.0

e/ Component 1: Strengthening Sectoral Federal Institutions

Component II: Investment Support to Local Water Utilities

Component 1I: Institutional Support for Water Utilties

b/ The expenditures to be financed exclude an taxes and also IVA.

- 12 -

Schedule C

MexicoSecond Water Supply and Sanitation Sector Project

Tlmetable of Key Project Processing Event

(a) lime taken to prepare: 14 months(b) Prepared by: BANOBRAS/CNA and consultants with Bank assistance(c) Pirst Bank Mission: Febnruy 28, 1993(d) Ap Mission Deparme: October 17, 1993(e) Negodation: February 21, 1994(f) Planned date of Effectiveness: September, 1994(g) List of Relevant PCRs and PPARs

Loan No. Pect PCR Date No.

909-ME Mexico City Water Supply Project June 83 46231186-MB Medium Cities Water Supply

and Sewerage Project Dec. 92 114481913-ME Second Medium Size Cities

Water Supply and SewerageProject Dec. 92 11448

2281-ME Third Medium Size CitiesWater Supply and SinaloaState Water Project Dec. 92 11448

3101-ME Water, Women and Development June 92 10819

- 13 - Schedule DPage 1 of 3

STATUS OF BANK GROUP OPERATIONS IN MEYICO

A. STATEMENT OF BAN LOANS(A of Marh 31, 1994)

Amount In US$ ilionle" ssnooelation)

Credl FislLOn No. Year Borrower Pumooe Bank IDA Undrlsbured107 loars fully dibursed 13,414.72

Of whhih SECALm, SALs, Program Loans, and Interet Suport a>

Ln. 1929ME 1981 ANOBRAS Railway IV 149.08Ln. 2331 -ME 1983 8ANCOMEXT Export Development 349.33Ln. 2882-ME 1988 BANCOMEXT Trade Polcy Loan 00.00Ln. 291 -ME 1988 NAFIN A ultral Sectot Loan 300.00Ln. 3169-ME 1090 BANCOMEXT Interest Support Loan 1,200.00Ln. 3207-ME 1990 8ANOBAAS Road Taport & Teecorm. 360.00Ln. 3087-ME 1989 NAFIN Indust Seatof Polcy 497.51Ln. 2745-ME 1807 8ANCOMEXT Trade Policy Loan 1 498.03Ln. 3080-ME 1989 NAFIN Public Entwpdrs Reorm 499.39Ln. 2777-ME 1987 BANCOMEXT Export Development U 248.37Ln. 219-ME 1OS NAFIN Fefilae Sctor 240.20Ln. 3309-ME 1991 BAICOMEXT Export Secor 25.00Ln. 33574ME 1991 NAFIN Agdrcltural Sector A4. U 400.00

Subtota 5,340.31

Ln. 2520-ME 1905 NAFIN Chapa Agdrcdtur 0ev. 60.00 3.22Ln. 2575-ME 1985 BANOLRAS RaIlwavs V 300.00 3.29Ln. 2056JE 1980 NAFIN Ariultur 0ev. ProderthU 80.30 39.39Ln. 20666-E 1980 IANOBRAS Muncipal Strenrteoning 40.00 17.34Ln. 20094ME 1980 BANOBRAS Soid Wwat Managent Piot 25.00 10.91Ln. 2824ME 1087 3ANOBRAS Urban Tranport 90.99 24.49L n. 286-ME 1907 NAFIN d lidustry IV 100.00 20.14Ln. 2876-ME 1987 BANOBRAS Highway Mshntsn 135.00 2.70Ln. 2910-ME 1988 NAUIN Ste1e Sector Restructuuhng 321.01 e9.27Ln. 29408ME 1988 BANOBRAS Port RPaheblltatlon 60.00 4.17Li. 30474ME 1989 NAFIN Ibnutri Restrucr 260.00 33.51Ln. 30834-E 1989 NAFIN Hydroeltdo rievelopent 400.00 89.9fLn. 3085-AE 1989 BANOCOMEXT Financl Sector A4uetnent 497.14 0.73Li. 31156ME 108 NAFIN Foesr Devlowpnt 46.60 35.90L. 3140-ME 1900 BANOBRAS Low4nome Housing 350.00 40.13Ln. 3141-ME 1990 NAFIN Agdicturl Marng U 100.00 0.49Lin. 3160ME 1990 NAFIN Transrission & Ditrbuton 450.00 106.06Ln. 320-ME 1090 BANOBRAA Teloomm Technia Asitac 22.00 3.50Ln. 3271-ME 1991 BANOBRAS Wat Supply & Sanitation 300.00 21.27Ln. 3272-ME 1991 NAIN Baslc Health Cwr 180.00 04.16Ln. 3310-ME 1991 NAFIN DntRallOn S Regional Delp. 360.00 111.00Ln.3 584ME 1991 NAFIN Technical Taining 11 1.00 101.42Ln. 3359-ME 1901 NAIN Ming Sector Resuctudng 200.00 114.39Ln. 34074ME 1992 NAFIN Pdnrmy Education 260.00 14.28Ln. 34190ME 1992 NAFIN Irdgtion & Drab" Bectr 400.00 234.84Lni. 3481-ME 1992 BANOLRAS Er6vronmentatural RPuree 60.00 37.64Ln. 3485-ME 1992 NAFIN Agdriul Technlo 150.00 141.21Ln. 3475-ME 1902 NAFIN Scee&TechnoogyWrasut 189.00 117.42Ln. 3497-ME 1992 BANOBRAS Housing Met Deeopment 40.00 231.13Ln. 3E10-ME 1993 NAFIN Idtl Educaton 00.00 71.99Ln. 3542-ME 1993 NAFIN Labor Maket & Prod. EnhaWmen 174.00 145.70Ln. 3543ME b> 1993 NAIN Trnport Air Polluton ContrU 220.00 220.00Ln. 3559-ME 1993 BANOBRAS Medium Cm" Traport 200.00 188.01Ln. 3020-ME 1993 BANOBRAS Highway Rehab. & Trafc Safety 480.00 406.05Ln. 3704-ME b> 1994 NAFIN On-amS Minor Iigti Netwro* 200.00 200.00Ln. 3722-ME b> 1984 NAFIN PrmryEducaton 42.00 4 2.0

Total 21,224.5 8,554.40Of Wich has been repoad 490.4ATotel now held by the Bank 14734.22

Amount ld : 92.34Of whbh ha ben repaid. 92.34

Totel Undsbureed 3.,64.40 3,554.40

*> Approved during or aftwr FY00 and fty dibuadSAL, SECAL. or Proa m Loan unde Impl_emenatIon.

b> Notyateffetdh

MdeS: LA2CIFil: WB03-94.xe14-Aprt.4

& s E!,!! [iI iU ''I'g EfIjitEgg !wI £ 33IIn!g ! | I~ |tp [ ft, 'i,Thr 1.! | i || e | !i|||1 !q ;It! 3|W1 34i! ti

aE a W ' 8| S W ' 4g!gE|0goAogo0XSogeeubbh{o

S g g O gg {Sl g 8 g b oOg g I §@ It I I I IS I I I II It I I I II I _ m

g Sg g *,_ t lXS0 * 44* , a a as ' ~ ' ass '~3~~ 'e ' ' ' ' 'U a ~ 8~ '3 ~ t 'as ' ' '''

'~~~~~~- ' -'''''oa''''''|''''''''''

- 15 -MEXCO Schedule D

SUMMARY OF IFC INVESTMENTS Page 3 of 3as d Mauch31,t904

uiniworn V#Ommxiwn FMi uffi oi y IunaINws@Fiscal YeWIGIFC Patl- by Patlol- #ndlu,,ngCo_Mb d Comay Type Bud_sin Loan Ei pt TOWl IFC pats ParWc ft)1002 Bmnco Muran dd Norte. SN.C. Development Finane 20.00 - - 20.00 20.00 - 10.30

1002 Mexdo City Toua Tol Road Trarpt & Stwage 13.5 - - 13.75 9.76 - -

1993 Mastrpak UA do C.V. TextilesRaoag 12.00 - 28.00 40.00 12.0 25.03 2.00

1003 CelulyyDerhadoSA.deC.V. TeUxlaaclaging 11.00 - 26.00 37.00 11.00 24.07 1.00

190034 Orupo Opaador de Terminales

Marma" SA (GOTM) Indusil Savicu 4.00 2.00 6.00 12.00 6.00 - 2.24

1004 Gke" Chwmkels S Pocdwalcals 15.00 8.00 42.80 6$.0 23.00 42.50 57.50

1004 Auum Hdler Finnil Sevice - 0.98 - 0.98 0.08 - -

- 0*4 le idts .8 - .- ii.O. - 0.2 flu *,10A : . . >

Les: Cancelidoins Terminatons. Repaymsnt & Sales 501.42 74.71 530.17 1,106.30

Pondag CommW a:

Indelpro, BA de C.V. III Chemicals & PetochemdIals - - 6.00 6.00

Kapta Devopment Fiance - 9.85 - 9.85Bancow Mot DevelopmentFinance - 0.15 - 0.15

edasa III Auto Chtasi 18.00 0.00 24.00 48.00

CTAPV Inra*uotwe 5.00 2.00 - 7.00

Inlreouamc CramIcT Hsa 21.00 - 17.50 38.50

a/ Invedments %*kh have ben hfu canceled, tsrminated. wlsn-of, sokL redeemed, or repadl

W US$25,000.ol Excludes phac nt d$30.0 mlion (Apasco), $20.0 million odrq),and$19.8 mUllon (Condumex)4! Consiab of apprved and signed projctds ncluding underming. but exluding srnp tansions I.e., Banca Sofin US0.5 millon

IndeIpro $0.0 millor Banamex $40.0 millon and Grupo Posadu 11 $6.5 millon).

#1 Hold Commntnts c*nsW of dcsbumed and undlsbursd hvesments.

-16- Annex IPage 1 of 3

ERRMENT OF 8ELI E;fMnistru of FnWneo

-~~ . U Q S

1200/C/02/94 (13)

7 Aprll, 1904

Stan. Robo R. De cotratZxecutiva Directorfta World *auklose R Stru.t P. W.Vashington D.C.20433U.S.A.>

-Pax. No. 202-477-4155

Dear Mr. ie Cotret

,s.Lj.g±etŽOa at.ratioa I. . .au

Thank you for your letter of 4 April, 1994 noxttfyit the Governmentof "alize that a World Bank Loan to Xexico presently underpreperatiLn would finance projects'tbat would have impacts on thevaterways along the Be1ize/Zaxico boarder or flowing from Mexicointo 3.li;e.

The Gvrnment of Delize has had an opportunity to revlew thellro ect ThformatLon ooDmst attadbe4 to your l.tter. In vitw theprovisions for the sele:tion and approval of sub-projocts itncdunder the Loan as v.ll as the expected beneficial effects su4b subwprojects on the affeoted watenmays, the Gcoverent of ReliU-e lr.dsIts full ;upport to the Project.

JO WAtGMTIo tnahvial 8ratry

cc, YP.. MLnistry of Economic DevelopmentP.S. Ministwy of the Invironment

T*L 08-22162. 22I8. 2216Z 22169%aet fLoo,aa

- 17Annex 1

Page 2 of 3

MINISTE:RIO DE FINP9NZAS PUBLICASGUATEMALA. C. A.

O/DWP/245/94 . -

12 de mayo 1994.-

URGE NTE

DIZRSCM UECUTIVOSAaO MUWIALWASHINGMt, D.C.

Seiffor Director:

En sguimiento a nuestra carta del 15 de abril sobre el Segundo ProyectoSectorial de Abastecimiento de Aguw y Saneramiento en MHxico, trasledo austed coentarios adicionales en relaci6n a la posici6n del Gobierno deGuatemala. HEmos considerado el tema de nuevo y el Gobierno de Guatemlaestima conveniente el desarrollo del Proyecto por parte de J*xico.

De conformidad a la naturaleza, funcionumiento y atribuciones de laCopiisi6n Internacional de Limites y Aguas (CZLA) entre Guatemala yM.ixico, organiamo Binaciona. que tiene bajo au jurisdiccifn todo lorelacionado a las aguas internacionales y rios limdtrofest el Gobierno deGuatemalat se asegurarS que a trav6s de la participci6n de la CILA, se8alvaYarden los interese4 de ambos pat

Sin otro particular, re swcrib i .

/~~~~~E D-

A..e,Z,.vg~mm

-18 - Annex 1Page 3 of 3

DEPARTMENT OF THE TREASURY0 WASHINGTON

Apr1l 25, 1994

Mr. Rdib>erto L. SeguraDirector, Country Departaent IILatin America and the Caribbean RegionThe World Bank1818 N Street, N.W.Washington, D.C. 20433

Dear Mr. Segura:

This is to acknowledqe receipt of your letter of March16, 1994. This letter notifies the United States of the twoproposed World Bank loans to Mexico which could have an impact onwaterways along the U.s.-Mexico border or flowing from Mexicointo the United States.

I appreciate the information that you provided andencourage the Bank to proceed with its project preparation. TheUnited States looks forward to reviewing these projects when theycone before the Board of Directors.

Sincerely,

Susan B. LevineDeputy Assistant Secretary

International Development, Debt andEnrironmet Policy

cc: Wancy Katz, OUSED/IBM

ito IBRD 2535

/.0 ei 7?MEXICoSECOND WATER SUPPLY AND

r--C- SANITATION PROJECT8A(IFOANIA Aa/ten

30. / - 30~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3

$ 00P A 1~~~NV

$ t~~~~? A"

4. c ~a o , ,N ,.. ' National cpstalIA ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~State capitol$

HA/A ~~~~~~~~~~~~~~~~~~~~~~0AHVI0 KPnipalp cities 01 towns

CAUIFOMNA 4.- Ditidd highways

Sul Y. Selected oWn mods.. 1. _ tRojlroods

4. PrIncipal airports---- Staos boneddwis

a. ~ ~ ~ ~ 4 Pm .f 5l3

,,don o / ZAA CR

m6 bo~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~torido.

, = ,= Tsw*4at S HON~~~~~~~~~DUN R AS

x YUC.tAP.

u ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~0$.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~e.o

It~~~~~~~~~~~~~~ooc 7 BLZ

OLOJtOlOR$ 0 100 300 300 400 000~~~~~~~~~~~~i

MILUO tOO 300 300 fl3/> / 7>.,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ ~ ~ ~ GUATEMALA 4~~~~~~~~~~~~~~~~VNBent. ~~~oor. Th~~danonsk,nOonn nosci and the bonn on tirE.~~~Leo

n,~~ OOnnt laSsOs an tO. por OH lisa Vthrtd Bank G,n.p~~~~~~~~~~~~ any lndg,naat~Nkan the ingot .toOsa at any tenOaryar any endanernant or Onoeptano.nH~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~anal, boandorbo. HONDURAS~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~a

ttor tOt? t0 ~~~~~~~~~~~~~~~~~~~~~~~uti