Report No. 957a-ME

Mexico: Appraisal of aThird Railway Project FILE COPYMarch 15, 1976

Latin America and Caribbean Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

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Currency Equivalents

Currency Unit = Peso (Mex$)US$1 = Mex$ 12.5Mex$ 1 3 US$0.08Mex$ 1 million US$80,000

Fiscal Year

January 1 - December 31

Weights and Measures

Metric: British/US Fquivalent

1 meter (m) = 3.28 feet (ft)1 kilometer (km) = 0.62 mile (mi)1 kilogram (kg) = 2.2 pounds (lb)1 metric ton (m ton) = 2,205 pounds

Abbreviations and Acronyms

AAR - American Association of RailroadsALALC - Latin America Free Trade AssociationCN - Constrtuctora Nacional de Mexicohacienda - Secretar!a de Hacienda, Secretariat of

FinanceN de M - Ferrocarriles Nacionales de MexicoPFf.EX - Petr 6 leos MexicanosPresidencia - Secretar!a de Presidencia-, Secretariat of

the PresidencySCT - SecretarAa de Comunicaciones y Transportes,

Secretariat of Communications and TransportationSOP - Secretarta de Obras Pdblicas, Secretariat of

Public Works

MEXICO FOR OFFICIAL USE ONLY

APPRAISAL OF A THIRD RAILWAY PROJECT

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ..................... i-iii

1.INTRODUCTION ................... .... . . ........ 1

2. BACKGROUND ... ...... .... .... 2

A. Economic Setting ......... * 2

B. The Transport Sector . .2

C. Transport Coordination, Policy andPlanning ............ 2

D. Outstanding Problems .. . 3E. The Search for Solutions .. . 4

3. THE RAILWAY SYSTEM 5 .. .................. 5

A. Introduction ..... .. ... .. .I ... 5

B. National Railways of Mexico (N de M) .... 6

4. THE PLAN AND THE-PROJECT ........ . 8

A. The Investment Plan . . 8

B. The Project.. 9C. The Proposed Loan . 12

D. Execution, Procurement and Disbursement . 12

EF. Ecology . .13

5. ECONOMIC EVALUATION .................... c .... 13

A. General ................ 13

B. Traffic Forecasts . .................... 14

C. Cost-Benefit Analysis ... 15D. Overall Economic Evaluation ...... 1

6. FINANCES ... . .......... ..................... 17

A. Financial Position .... ................. 17B. Tariffs and Costs .. .................... 18C. Future Prospects ...... ................. 19

D. Financing Plan . ...... .. *. ............ .. 21

E. Accounts, Budget and Audit ............. 22

7. AGREEMENTS REACHED AND RECOMMENDATION ....... 23

This Appraisal Report has been prepared by Messrs. Mahendra Lal (RailwayEngineer), N. Rasheed (Financial Analyst), A. Soto, H. Woltman, and R. Burns(Economists), and U. Aguirre (YP) and has been edited by Miss V. Foster.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABLE OF CONTENTS (Cont'd)

TABLES

1. Current Rolling Stock Data2. Operating Statistics3. Investment Plan (1975-1979) to Project (1976-1977)4. Project and Bank Loan5. Diesel Locomotive Requirements 1975-19796. Freight Car Requirements 1977-19797. N de M Freight Traffic in 1966, 1970, 1974 and

Forecast for 1976, 1978 and 19808. Revenues, Expenses and Net Loss 1974-19799. Summary Balance Sheets 1972-197910. Cash Flow and Financing Plan

ANNEXES

1. A Review of SOP Works2. N de M Organization Diagram3. Staff Data - N de M4. Property, Maintenance and Operations5. Track Renewal Program - 1975-19796. N de M's Plan of Action7. Action Program of Second Railway Project8. Project Implementation Schedule9. Track Maintenance Machinery - 1976-197710. Proposed Telecommunications Network - N de M11. Workshop Machinery12. Consultants' Services13. Estimated Loan Disbursement Schedule14. Economic Justification15. Assumptions Used in flaking Forecast Income Account16. Details of Financing Plan

MAPS

Map IBRD 3655R - Mexico RailwaysMap IBRD 11843 - N de M P'rincipal Traffic RoutesMap IBRD 11844 - N de M Railway Track, Rail Freight Traffic Flow

MEXICO

APPRAISAL OF A THIRD RAILWAY PROJECT

SUMMARIY AN1D CONCLUSIONS

i. The railway system of Mexico has played a crucial role in thedevelopment of the country by providing low cost transport for the bulklong-haul traffic. Mexico has relied Ipon the railways to export, mainlyto the USA, its agricultural and rmineral products; to import machinery andengineering hardware for its industrial centers in Monterrey, Guadalajaraand Mexico City; and to provide the means for hauling, within the country,the agricultural produce, raw materials and manufactured goods required byits industrial and population centers.

ii. The implementation of the Mexican Government's plans in the agri-cultural and industrial areas, aimed at some dispersal of the economicactivity in the country, has contributed to a rapid increase in railway traf-fic which is expected to grow steadily over the next few years as a result ofthe major expansions under way in the agricultural, steel, cement and petro-chemical sectors.

iii. This report appraises a project to renovate and modernize theplant and equipment of Ferrocarriles Nacionales de Mexico (N de M), to improveits operations and to reduce the financial deficits of the railway. N de Mis state-owned and is by far the largest railway in Mexico, operating 71% ofthe route-km and carrying 80% of the total railway traffic of the country.

iv. The proposed loan of US$100 million would be the third railwayloan to Mexico and the twelfth in the transport sector. Loan 103-ME in 1954(US$61 million) was the first railway loan for the rehabilitation and modern-ization of the Ferrocarril diel Pacifico. The second railway loan, 825-MEin 1972 (US$75 million), was made to finance a project aimed at strengtheningN de M's competitive position through equipment modernization, operatingimprovements and a progressive reduction of its financial deficits. Sevenhighway loans totaling IfS$266.8 million have so far been given to Mexico forconstruction of highways, toll roads and bridges, one loan (US$20.0 million)for the ports and one loan (US$25.0 million) for regional airports.

v. The second railway loan (to N de 14) enabled the railway to renovateits track, to acquire new rolling stock, to make a start toward a moderntelecommunications network and to generally improve its financial conditionby focusing attention on the need for tariff adjustments and reduction ofpassenger train deficits. Although substantial improvements were made bothin the operations and financial condition of the railway, much remains to bedone to enable N de O` to carry the increasing volumes of traffic and toachieve financial viability.

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vi. The proposed loan to N de M, which would be a logical followup ofthe Second Railway Project, aims at: further improvements in the areas wherea beginning was made in the second project. The proposed project combinesthe 1976-1977 portion of a Five-Year Investment Plan for 1975-1979, preparedby N de M and modified in accordance with Bank recommendations, with a Planof Action prepared in collaboration with N de M. Investment will be mainlyfor the acquisition of more rolling stock and motive power to enable N de Mto carry the increasing traffic and to reduce its dependence on foreign cars,the improvement of track and bridges by providing heavier rails in keepingwith the heavier rolling stock, and the installation of the VHF/UHF tele-communications network and the car zontrol system to improve the railways'communications and control systems. Improvement and expansion of yards,stations, and other facilities and consulting services to assist N de M incarrying out the proposed improvements are also included.

vii. The Plan of Action focuses attention on the reduction of operatingcosts by the improvement of locomoti.ve and car utilization; on control overthe staff employed by better organization and by preparation of a long-termmanpower plan; on adjustment of freight rates and fares in keeping with therise in costs and on the reduction and rationalization of passenger and otherunremunerative services to reduce operating losses. During negotiations,agreement was reached on the implementation of the Plan of Action.

viii. The financial situation of N de M has been deteriorating, and theoperating ratio increased from 148 in 1972 to 173 in 1974 against the SecondRailway Project target of 127. In 1974, freight revenues failed to cover eventhe long-run variable costs. The loan agreement for the Second Railway Projectcalled for an increase of freight rates by early 1974, but this was delayeduntil January 1975. The main reasons for the delay were: (a) that the Govern-ment wanted to apply common tariffs across the entire railway system with arevised rate structure which would cover at least the variable cost of railwayoperations and (b) that the Government was concerned about the slowdown ofeconomic growth in Mexico. However, the tariff increases in January 1975 weresubstantial and not only covered the variable cost but also contributed towardfixed costs. As a result, the financial situation improved in 1975, and theoperating ratio was 136 as against the target of 130.

ix. The passenger services are operating at low fares and occupancyratios. In 1974, the passenger revenues were only 5% of total revenues but22% of the variable cost. This poor situation has long been noticed. InFebruary 1975, although there was some increase in passenger fares, this wastotally inadequate to solve the critical financial situation of passengerservices. The second project called for N de M to submit to the Governmenta program for curtailment of passenger services and fare increases, or com-pensation for losses on uneconomic services which would otherwise have beenavoided. Out of some 54 intercity passenger train services, N de M discontinued14 in 1974 and received approval from the Government to discontinue or modify

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10 more services in 1976. Considering the difficulty around the world of

eliminating uneconomic passenger trains and the recent favorable position ofrailways in relation to other modes resulting from the energy crisis, the action

taken so far by N de M is satisfactory. N de M will also review each yearthe financial condition of the remaining passenger trains with the objectiveof reducing, progressively, their financial deficits. The Government will

grant specific compensation to N de M for uneconomic passenger trains whichwill continue to operate for social reasons.

x. The financial projection for 1975-1979, based on forecast trafficincreases, the tariff increases of 1975 and the Investment Plan, indicatesthat there will be a gradual improvement in the financial situation. Theoperating ratios will improve from 136 in 1975 to 110 in 1979. N de Mshould be able to obtain sufficient revenues to cover, by 1983, all operatingcosts and interest on debts and, by 1986, all operating costs and debt servicecharges. It is, nevertheless, crucial to the attainment of financial viabil-ity that N de M and the Government take all necessary action, includingincreases in tariffs, to cover rises in costs, particularly staff costs, dueto inflation.

xi. The total estimated cost of the project, including contingencies,is US$576 million equivalent, with a foreign exchange component of US$253million. The proposed loan of US$100 million will finance about 40% of theforeign exchange cost. Included in the foreign exchange cost of the projectand in the loan will be the purchase of rails and some track machinery, theVHF/UHF telecommunications equipment, consultants' fees, and the componentsfor local construction of about 5,300 freight cars; these components will be

procured through international competitive bidding in accordance with Bankguidelines. The cars will be built by Constructora Nacional (CN), the state-owned railway car construction company, in line with optimum utilization ofits existing capacity. All goods financed under the proposed loan would beacquired on the basis of international competitive bidding in accordancewith the Bank's Guidelines on Procurement. Local bidders would be granteda margin of preference by adding 15% (or the applicable customs duties, which-ever is lower) to the CIF value of the foreign bids. For the important pur-chases outside Bank financing, N de M proposes to arrange bilateral financing

for items such as locomotives and mail/passenger cars.

xii. The economic rate of return would be at least 17%. The maineconomic benefits would be derived from greater traffic carried at reducedcost, the decrease of railway operating costs and the avoidance of costlydiversion to road of freight traffic. Because not all benefits could beeasily quantified, this is a conservative estimate, and a higher return canbe expected.

xiii. The project would provide a suitable basis for a Bank loan of US$100million for a term of 25 years, including a four-year grace period.

MEXICO

APPRAISAL OF A THIRD RAILWAY PROJECT

1. INTRODUCTION

1.01 The Government of Mexico and the Ferrocarriles Nacionales de Mexico(N de M) have asked the Bank for assistance in financing N de M's investmentsduring 1976 and 1977, estimated at Mex$ 7,201 million (US$576 million equivalent).

1.02 The technical, economic and financial analyses of this report dealwith N de M's Plan of Action for its operational and financial rehabilitationand with the 1976-1977 portion of its Five-Year 1975-1979 Investment Plan,which forms the basis of the proposed project. The project for 1976-1977includes the expenditure of Mex$ 7,201 million (US$576 million), of which theproposed loan would contribute US$100 million. The consultants, TOPS On-Line,USA, have been studying the problems of N de M since 1972. The implementationof their recommendations has already produced several improvements in therailways' working and has prepared the way for detailed action plans, describedin this report.

1.03 This would be the third railway loan to Mexico. The first loan(103-ME) of US$61 million for the rehabilitation and modernization of theFerrocarril del Pacifico was made in 1954, and the works were completedsuccessfully in the late fifties. The second loan (825-ME) of US$75 millionfor the modernization of N de M was made in 1972 and is progressing satis-factorily within the estimated costs, except for the telecommunications pro-gram and rails - the former on account of a redefinition of the telecommuni-cations package and the latter due to a rise in the price of steel railsfollowing the oil price increases. The telecommunications portion of theproject was redefined since N de M decided, in consultation with and on theadvice of TOPS On-Line, in favor of a modern telecommunications system com-prising VHF and UHF radio instead of a mere reconditioning of the old openwire system (para. 4.09). The preparation of the specifications and tenderdocuments for the telecommunications package, and the bidding, procurementand installation of the new equipment have caused the closing date of thesecond railway loan to be extended from December 31, 1975 to June 30, 1977.

1.04 The second railway loan has helped N de HI to renovate its track,to acquire new rolling stock and to make a start toward a modern telecom-munications network. The proposed third railway loan is intended to pursuethis trend, with improvements in track, operations, and telecommunicationssystems and with the procurement of more rolling stock to increase N de M'scapacity and to improve its financial viability.

1.05 This report is based on (a) N de M's Investment Plan for 1975-1979;and (b) the findings of the appraisal mission of April-May 1975, consistingof Messrs. J. Kesson (Consultant), A. Soto (Economist), N. Rasheed (FinancialAnalyst) and Mahendra Lal (Railway Engineer); it has been edited byMiss V. Foster.

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2. BACKGROUND

A. Economic Setting

2.01 The demand for intercity transportation in Mexico is derived notonly from growth in production and consumption but also from the spatial dis-tribution of economic activity. Among the more relevant facts for transporta-tion is the dominance of the Mexicc City Metropolitan Area as a trafficgenerator. Out of an estimated 1975 national population of 60 million,almost 10 million reside in the Mexico City Area. The only other cities witha population in excess of one million are Monterrey and Guadalajara, withapproximately 1.7 million each. With 17% of the national population and 42%of the national manufacturing employment, the spatial distribution of pro-duction and consumption is highly skewed toward the capital city, and thetransport network has been constructed to serve the existing pattern of flows.Policies have been designed to discourage further concentration in the nationalcapital and to overcome the momentun built into the present spatial order.Low cost rail transportation will, among other factors, be important to theachievement of the long term objective of more even dispersal of economicactivity throughout the country.

B. The Transport Sector

2.02 The Mexican transport system followed the classical pattern ofdevelopment. The railway era of 188I0-1910, during which the bulk of thesystem was constructed, was financed largely by foreign investors interestedin exploiting the mineral and agricultural resources of the country, and thecurrent rail system continues to cater to the movement of bulk agriculturaland mineral products as well as a substantial amount of industrial products.The route length of the railway network has changed very little since 1910,but investments have been made in the upgrading of track, motive power androlling stock. Rapid growth of the road system from 1930 on has duplicatedmajor routes and extended the transport network to areas not served by rail.Because Mexico's modern development has been basically inward-looking, portrequirements for foreign trade have been relatively modest; nevertheless,:significant port improvements have been made. Exploitation of the nation'spetroleum resources has generated a large coastal traffic in petroleum andits products, and a much larger development of pipeline transportation. Agrowing middle class and expanding foreign tourist trade have fed the growthof air transportation. Mexico now has 20,000 km of railways; 122,000 km ofpaved and graveled roads; 37 public ports, of which 11 have some commercialsignificance; 84 commercial airports, of which 43 can handle medium or largerjet aircraft; and over 12,000 km of gas, oil and petroleum product pipelines.

C. Transport Coordination, Policy and Planning

2.03 Federal (primary) highways are planned, built and maintained by theSecretariat of Public Works (SOP), except that toll roads are operated andmaintained by an independent agency. SOP also has a controlling influence onstate and local roads through its participation in their financing and planning.

The Secretariat of Communications and Transportation (SCT) has an advisory rolein highway planning, and it is responsible for the regulation of common carrierhighway transportation. To date, these regulations have not prevented thedevelopment of a highly competitive trucking industry.

2.04 The two largest railways (Nacionales and del Pacifico) are auto-nomous Government Agencies (para. 3.02) and have played an important role inthe transportation system of the country; the other three railways areoperated by a Directorate of SCT under general managers appointed by theSecretary of Communications and Transportation. There has been considerablerailway unification (there were 11 companies in 1964), and progress continuesto be made in this direction. Major railway construction projects are de-signed and built by SOP in collaboration with the railways and SCT.

2.05 Three separate departments within the Secretariat of the Navy (Marina)are respectively responsible for planning and building port works; construc-tion and maintenance dredging; and operation and maintenance of the ports,except for cargo handling, which is managed by recently established "empresas,"owned jointly by port workers and the Government, or by independent unions.

2.06 Airports are operated by Aeropuertos y Servicios Auxiliares (ASA),an autonomous Government agency. Airport construction and major maintenanceare performed by SOP. Airport planning appears to be dominated by SOP,although other agencies, including SCT, participate. The two trunk airlinesare roughly of equal size: one is a Government enterprise and the other aprivate operation.

2.07 Like other major oil companies throughout the world, PEtEX, thestate petroleum company, is a major transportation agency in its own right,with a tanker fleet, pipeline, tank trucks, and railway cars.

2.08 Regulation of transportation tariffs is formally under the juris-diction of the Department of Tariffs of SCT, but tariff decisions are usuallypolitically determined at higher Government levels.

D. Outstanding Problems

2.09 While the present transport system is a major acihievement, it isnot without problems. Uneconomic railway passenger services have been heavilysubsidized, while urgent requirements for additional freight cars have, untilrecent years, gone unsatisfied. Selective railway capacity expansion shouldbe accompanied by improved operations, rational and timely pricing of services,and abandonment of uneconomic services. Further trunk highway constructionwill be needed, especially in the south and east, but Lhe future emphasis mustbe placed upon maintaining and strengthening the existing trunk system andsupplementing it with secondary and tertiary roads. A rational road usercharge policy is needed: at present, for example, there is no user tax ondiesel fuel, the fuel most used by intercity truckers and bus operators.There is overcapacity in most of the smaller ports, and, in some of them, noreasonable level of ship or shipper chargec can cover current depreciationexpenses. Expansion or modernization of a Lew major ports will be required

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to handle an expected increase of foreign trade, but, in general, stress needsto be placed on avoidance of uneconomic investments and on substantial improve-ments in operating and financial performance. Airport investment and pricingpolicy should question the present degree of cross-subsidization and whetherextensions of it are warranted by social benefits. Finally, the problem ofnational coordination of transport investments and policies must be mentioned,since a rational approach to the problems of the transport sector is at leastpartially dependent on a larger view of national transport needs.

E. The Search for Solutions

2.10 The problems outlined above are well known from previous Bankappraisals. The rail passenger deficit is a serious drain on public resources.A major objective of Bank lending for railroads in Mexico is to bring thisdeficit under control. The issue of road pricing has recently been addressedin an ambitious study of road user charges, financed under the Second RailwayProject and about to be completed by the SCT. Preliminary findings indicatethat, although the road user charges, as a whole, largely cover constructionand maintenance of the urban and inter-city road network, diesel-driven trucksare receiving a substantial subsidy. Discussions of the findings and recommen-dations of the recent study will take place in the near future. A major objec-tive of Bank lending for ports is to curb the excesses in new port developmentsand to improve the operations and financial performance of existing ports. Thepossibility of embarking on major new investments in any mode without carefulconsideration is always a danger, especially when the primary transport networkconfiguration is nearing maturity, as Mexico's is. Consequently, the Bank hasinsisted that it be advised of any major construction projects in modes receivingBank support.

2.11 The problem of national transport policy is complicated by theexistence of various, poorly coordinated government organizations (paras. 2.03-2.08). Nevertheless, some progress has been made recently. Within the portssector, the National Ports Coordination Commission has been established toharmonize the port activities of the Government and the other entities involvedin port operations and to produce a national port development plan. An avia-tion subgroup with similar objectives has been added to the inter-agency Trans-port Coordinating Committee within the Secretariat of the Presidency. TheTransport Coordinating Committee itself is a recently established group inwhich all Government agencies normally interested in transportation are repre-sented at the Ministerial, Director General, and working levels. Its coordi-nating function is advisory and largely concerned with reviewing and seekinginter-agency consensus on specific short-run transportation problems, includ-ing budget plans of the transportation enterprises and agencies. The PlanningDirectorate of SCT has been strengthened and given responsibility for a long-range national transportation plan. Since all these efforts, most of whichwere initiated with Bank support, are relatively recent, their effectivenessis just beginning to be felt in the field of transport planning and coordina-tion.

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3. THE RAILWAY SYSTEEi

A. Introduction

3.01 N de M is the largest of the five separate state-owned railways;their extent is indicated below and shown on Map IERD 3655R.

Route - KmStandard Narrow Total Z

Gauge Gauge(1.435 m) (0.914 m)

Autonomous OperationNacionales de Mexico 13,583 440 14,023 71Del Pacifico 2,284 - 2,284 11

SCT LinesChihuahua al Pacifico 1,515 - 1,515 8Sonora-Baja California 539 - 539 3Unidos del Sureste 950 420 1,370 7

Total 18,871 860 19,731 100

3.02 N de M and del Pacifico are autonomous Government agencies. Bothare managed by the same General Manager and have Boards of Directors repre-senting the various Secretariats, the Chambers of Commerce and the Union ofRailway Workers. The other railways are operated as a Directorate of theSecretariat of Communications and Transport (SCT) and are controlled byGeneral Managers appointed by the Secretary of Communications and Transport,who also acts as Chairman of the Board of all Government railways. Throughthe SCT, the Government controls safety and engineering standards and tariffsof all railways.

3.03 The Sectoral Planning Directorate of SCT, in its capacity as coordi-nator, examines the long-term investment plans of N de M, but approval of theinvestment budgets is given by the Presidencia and the Hacienda. The RailwayDirectorate in the SOP has separate annual budgets for major construction works,such as new railway lines, realignments and regrades, which, on completion, arehanded over to N de M for operation. There is good coordination between N de M,SCT and SOP on the broad planning, and on technical standards used; there isalso agreement that any item likely to involve considerable interference witihN de M's daily traffic operations shall be carried out by N de i1 and includedin the N de M budget. Each project is examined by SOP with regard to techni-cal, financial and economic considerations, and a minimum rate of return of12% is required. However, during negotiations, it was agreed that the Govern-ment shall, during the period covered by N de M's Investment Plan, and before

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undertaking any investment in new projects for the railways estimated to costmore than US$10 million equivalent in any one year, afford the Bank a reason-able opportunity to review and comment upon the feasibility studies for suchinvestment. This is necessary since new projects without adequate economicjustification can adversely affect the financial viability of N de M. A re-view of SOP works in progress and proposed for the coming years is given inAnnex 1.

B. National Railways of Mexico (N de M)

(i) Management, Organization, Staff and Training

3.04 The present organization diagram is given in Annex 2. The manage-ment of N de M is competent. Under the General Manager, the Deputy GeneralManager is in effective charge of the operating departments, with other de-partments such as staff administration, finance and planning reporting direct-ly to the General Manager. One of the weaknesses of the system, however, hasbeen the division of the railway into 17 districts with the various depart-ments in each district supervised by the different heads of departments underthe Deputy General Manager. This ratlher strong vertical and departmentaldivision of responsibility and managernent often led to lack of coordinationat the district level and is now being remedied on the advice, and with theaid, of the consultants TOPS On-Line. The earlier 17 districts have beenregrouped into four regions, each under a regional manager, to ensure bettercontrol and coordination and improved liaison with headquarters.

3.05 Staff data are given in Annex 3. Staff has increased to keep pacewith the increase in traffic, and the total number of full time regularemployees rose from 59,000 in 1970 to 63,263 in 1975 (against 59,000 throughto 1976, as agreed to in the Plan of Action for Loan 825-ME). However, theincrease in traffic during this period has been phenomenal and, at 50.1 mil-lion tons in 1974, far exceeded the expectations of the second loan appraisalmission of 47.3 million tons for 1976. In terms of ton-km, it was expectedthat N de M would carry 21.26 billion ton-km in 1974, whereas the actualtraffic in 1974 was 25.45 billion ton-km and is expected to reach 29.63 bil-lion ton-km in 1976. The productivity per man in terms of traffic units hasactually improved from 375,000 units in 1970 to 459,242 units in 1975, afigure which compares favorably with the productivity of more advanced rail-way systems. However, N de M should be cautious in making further increasesin staff to ensure that the effect of the operational improvements foreseenin the proposed project, on the one hand, and the increase in traffic, on theother, are carefully weighed before any projections are made for the staffrequired for the future.

3.06 N de M has a large training establishment (Instituto de Capacitacion),which provides training programs at the main railway centers and by means ofmiobile schools and correspondence courses for (a) maintenance and track struc-tures; (b) operation of stations, yards, trains and locomotives; (c) mainte-nance of diesel locomotives and rolling stock; and (d) general administration,including middle and top management training. Although the training establish-ment is well organized and the training courses are managed competently, the

U -oes not have a modern recruitrment and training scheme, and there is

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need for modernizing both the recruitment and training practices in order tokeep in step with the new systems and equipment being introduced on therailway.

3.07 As part of the Plan of Action (para. 4.01), N de M agreed to prepareand submit to the Bank for comments, not later than June 30, 1977, a manpowerplan which will include, inter alia: (a) the departmental distribution ofmanpower year by year up to 1980 in accordance with the improvements in theoperations of N de M as set forth in N de M's Investment Plan and Plan ofAction; (b) a scheme for the solution of the problem arising from over-agedpersonnel and for the long-range financial burden of pensions; and (c) ascheme for the improvement of recruitment and training standards for thestaff of N de M.

(ii) Railway Property

3.08 N de M operates approximately 14,CO route-km of railway: maintraffic routes total about 7,600 km (Map IBRD 11843), and, on these, N de Mis proceeding with a program of renewal, using heavy rail, concrete sleepers,welded rail joints and new stone ballast, to give a good standard of trackto take the increasing traffic and heavy axle load locomotives and freightcars now in use. Secondary lines are being renovated using released rail,while arrears of timber sleepers and stone ballast replacements are beingmade good on these and other lines. The main routes between the Mexican sea-ports and the central highlands were built in the 19th century with steepgradients and sharp curves which now present operating and maintenance problemsunder progressively increasing gross tonnage of traffic. Proposals for regrad-ing and realigning such sections are being investigated jointly by N de M andSOP. Track maintenance, especially on the renovated tracks, needs to beimproved, and this will be done by a program for the provision of mechanicalaids and the regrouping of the labor forces. Further data regarding N de Mtrack and property are given in Annex 4, and information regarding the relay-ing programs in Annex 5.

3.09 A short section of line, about 100 km, on one of the steep hillsections is electrified; otherwise, the system is wholly diesel operated.There are nine electric locomotives, 1,014 diesel locomotives and 40 dieselrailcars; 261 locomotives, a large number of which are of small horsepower,are to be withdrawn for scrapping on an age/condition basis during the period1975-1979, and 299 locomotives are to be purchased during this period, which,for reasons of standardization, will be confined to the GE/GM brands. Thefreight car fleet of 26,262 units is relatively modern and of good design.About 2,000 units are 40 or more years old and are to be withdrawn for scrap-ping at the rate of some 400 cars per year. About 5,500 freight cars arepresently on order for delivery in 1975-1976. To cater for the increase intraffic forecast, new cars are proposed for ordering at the rate of approxi-mately 2,500 per year from 1976 througlh 1979. Of the passenger cars, total-lin- 1,390, on the standard gauge tracks, about 640 are 30 years old or moreand are unsatisfactory for service and maintenance. N de M is replacing 176 ofthese during 1975-1976. The maintenance of locomotives and of a large propor-tion of the car fleet has been reorganized and improved (with the assistanceof TOPS On-Line) during the past three to four years, and the percentage of

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rolling stock out of commission shows a promising trend. This work must becontinued, and particular attention will need to be paid to the introduction(a start has already been made) of a scheme for maintenance of cars on aprogram basis. Details of the locomotive and rolling stock fleet are givenin Table 1.

(iii) Operations

3.10 The most important operating statistics are given in Table 2.Freight traffic increased from 38._3 million tons in 1970 to 44.1 million tonsin 1973 and to 50.1 million tons in 1974. Freight train loads increased,with the introduction of higher horsepower diesel locomotives, from 931 nettons in 1970 to 1,168 net tons in 1974. There was also an increase in averagecar loads from 39.3 tons in 1970 to 47.6 tons in 1974. However, freight carturnaround time deteriorated from 13.9 days in 1970 to 19.2 days in 1973.Although there was some improvement in turnaround time in 1974, an analysisof wagon time indicates that detentions in terminals and intermediate yardshave increased considerably. Some measures have already been taken to tightenup control of wagons in yards, and the introduction of the PICL System (Perma-nent Inventory Control of Car Location) at Valle de Mexico is a step in theright direction. This system is to be extended to other yards. The start ofunit and through trains, introduced after careful planning, has also increasedwagon utilization since iron ore, limestone, petroleum products and otherminerals are now being carried in unit trains working to timetables.

3.11 Locomotive and car availability has improved on account of bettermaintenance, and locomotive utilizalion has also improved; the average loco-motive-km per diesel locomotive increased from 89,800 per year in 1970 to97,600 in 1974. It is expected that, with the increase in the number of unitand through trains and with the improvement in telecommunications facilities,there will be further improvements in locomotive and car utilization. Theseprojected improvements were taken into account in determining the requirementsof additional rolling stock for meeting the demands of increased traffic infuture years.

(iv) Signal and Telecommunications

3.12 The existing telecommunications system is quite antiquated and,except for the comparatively small sections worked by Centralized TrafficControl (CTC), trains are operated on the train-order system, and the rail-way has no signals. This has necessitated the proposed installation ofVHF and UHF radio systems, together with the required exchanges and tele-printing equipment (para. 4.09).

4. TEE PLANI AN:) TlHE PROJECT

A. The Investment Plan

4.01 Based on the forecast of traffic, on the anticipated operationalimprovements as set out in the Plan of Action (Annex 6), and on a program of

rehabilitating and improving parts of its track, rolling stock and associatedassets, N de ItI has prepared an Investment Plan for 1975-1979 which is set outin Table 3. This plan continues and supplements the plan originally preparedfor 1972-1976, of which the Bank financed the 1972-1973 portion under theSecond Railway Project. Total investment in the 1975-1979 Plan is estimatedat Mex$ 17.5 billion (US$1,401 million equivalent) with a foreign exchange com-ponent of Mex$ 7.0 billion (US$560 million). It was agreed during negotiationsthat N de M will implement the Plan of Action and will carry out all itermls ofthe Investment Plan and will make no additions or new investments overUS$20 million without consultation with the Bank.

4.02 Cost estimates for the Investment Plan are based on prices at thebeginning of 1975. Local material, labor and contract data for similar workcarried out on N de M have been used where appropriate. Recent quotationsfor imported material and equipment to Mexico and elsewhere have been reviewedand utilized. Physical contingencies have been taken at 5% only when thequantities/works are not clearly defined. Price contingencies on local itemshave been taken at 17% for 1975, 15% for 1976, 12% for 1977 and 10% for theyears 1978-1980. On foreign material and equipments, contingencies have beenprovided at 12% for 1975, 10% for 1976, 8% for years 1977-1979 and 7% for 1980.Overall, the price contingency element allows for cost increases during 1975-1979 averaging 30%.

4.03 A detailed evaluation of the progress in the implementation of theprevious Plan of Action for the Second Loan (825-ME) is given in Annex 7.Operating performance of the railway improved, and the freight rate increasesof 1975 helped to better its financial position. Passenger fare increases wereinadequate, and, clearly, much remains to be done in this area. However, theSecond Railway Loan achieved its objective of improving the railway's workingby renovating its track, adding rolling stock anid motive power, and, above all,by focusing attention on the problems of freight rate increases and unremuner-ative passenger services.

B. The Project

4.04 The project combines the Plan of Action with the 1976-1977 portionof N de M's 1975-1979 Investment Plan. The cost estimates are detailed inTable 4 and are summarized below:

Project Proposed LoanLocal Foreign Total Amount % of Loan-------------- (in US$ Million) -------------

Track and structures 52.9 39.6 92.5 30.0 30%Signalling and telecommunica-tions 16.5 25.5 42.0 15.0 15%

Construction works 42.2 0.2 42.4 - -Locomotive and rolling stock 132.1 154.9 287.0 30.0 30%Consulting services 2.2 0.8 3.0 0.6 0.6%

Sub-total 245.9 221.0 466.9 75.6 75.6%

Contingencies- physical 7.8 4.5 12.3 3.3 3.3%- price 69.6 27.3 96.9 21.1 21.1%

Total 323.3 252.8 576.1 100.0 100%

4.05 The objectives of the project, together with the Plan of Action, are:(a) to enable N de M to cope with the increasing traffic it is required tocarry by the improvement of its operating efficiency, the rehabilitation ofits track, the modernization of its telecommunications system and the acquisi-tion of urgently needed rolling stock and machinery; and (b) to achieve finan-cial viability by a gradual reduction of its operating deficits.

4.06 A brief description of the main items of the project is given below,and a Project Implementation Schedule is included in Annex 8.

(i) Track and Structures

4.07 N de M has in hand a program of (a) complete track renewal on prin-cipal traffic lines, (b) partial replacements using recovered rail on secondarylines, and (c) making good arrears in replacing timber sleepers and stoneballast on other lines. The track renewal program for 1975-1979, as proposedby N de M, after amendment in agreement with the mission, is set out inAnnex 5 and illustrated on Map IBRD 11844. During 1976-1977, N de M proposesto renew about 660 km of track with rnew rail, to renovate 400 km with second-hand recovered rail and to continue its program of replacing wornout sleepersand of reballasting wherever required. Also planned is the provision ofvarious items of track machinery and equipment to accelerate maintenance andtrack renewal works in order to improve the standards of maintenance, tomaximize sectional capacity and to make the track suitable for the increasedtraffic requirements. The proposed equipment is listed in Annex 9.

4.08 Several bridges on the railway system are not strong enough for theload imposed by the new locomotives and freight cars, and the Investment Planprovides for the strengthening and renovation of such bridges to removecapacity constraints. Sidings at stations, terminals and intermediate yardsare also being enlarged or remodeled to enable longer and heavier trains tooperate.

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(ii) Signalling, Telecommunications and Electrical Supplies

4.09 During the Second Railway Project, N de M decided, on the adviceof the consultants TOPS On-Line and in agreement with the Bank, to providea new VHF/UHF radio communications system instead of renovating the existingopen wire system; a detailed plan was consequently drawn up for a VHF/UHFradio system, which, in conjunction with SCT's microwave network, would providea modern telecommunications network for the system. Bids were received byN de M in April 1975, and contracts were awarded for the VTF equipment toMotorola (USA) and for the UHF equipment to Nippon Electric (Japan). An agree-ment was also made with the labor union to ensure that the new system would beintroduced without any difficulties. Part of the work was included in theSecond Railway Project. It is intended that the foreign exchange cost of theremaining items be financed from the proposed third loan. Details of the pro-posed telecommunications system are given in Annex 10. The proposed systemwould provide a basis for much needed improvements in operation and for themodern, computer-based car control system included in the project. In addi-tion, CTC facilities would be extended to cover more high density sections,and the existing communications equipment in workshops, stores, terminals andyards would be replaced by modern equipment more in line with the overallimprovements in the communications network.

(iii) Construction Works

4.10 Provision is made for earthworks, drainage and other servicesrequired for station, terminal and marshalling yard extensions, for buildingworks in connection with additions to workshops, station buildings, goodsdepots, and offices, and for housing facilities for N de M staff (mainlyfor the regrouping of track maintenance staff with mechanization staff).Allowance is also made for hospital and staff welfare facilities, whichN de M is required to provide under Government and labor contract require-ments.

(iv) Locomotives and Rolling Stock

4.11 The project includes the purchase of about 124 new diesel locomotives(Table 5), ranging from 2,000 to 3,600 HP, and about 5,800 freight cars. Thesenew freight cars are intended not only to meet the demands of increased trafficbut also to cover the scrapping of old and obsolete units and to reduce theutilization of foreign cars to a reasonable level (Table 6). In addition,N de M is obtaining 30 mail vans and 176 passenger coaches under contractsrecently placed in Switzerland and Canada, mainly to replace over-aged units.It is also proposed to purchase breakdown cranes required to deal with derail-ments and accidents to the heavier locomotives and cars now in service.

4.12 For the workshops and service depots, additional machinery andequipment are to be procured to improve efficiency (list in Annex 11).

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(v) Consulting Services

4.13 N de M plans to utilize local consultants to assist in the designand preparation of documents for its bridge strengthening, general worksconstruction and operational improvement programs. Provision is also madefor consultants to continue technical assistance as part of the project inthe areas of telecommunications and car/train control systems (Annex 12).

C. The Proposed Loan

4.14 A loan of US$100 million is proposed to finance about 40% of theforeign exchange cost of the project. The items proposed for financingwfould include:

(a) Rails - 76,000 tons of 115 lb/yd (para. 4.07);

(b) Track maintenance equipment (para. 4.07);

(c) VHF/UHF communications system, second part (para. 4.09);

(d) Imported components for 5,300 cars for local manufacture(para. 4.17);

(e) machinery and equipment for workshops (para. 4.12); and

(f) Consulting services (para. 4.13).

The above items have been selected mainly because they are suitable for inter-national competitive bidding and because N de M does not have other sources offinances for them.

D. Execution, Procurement and Disbursement

4.15 N de M, assisted by consultants, will carry out the project. Allgoods financed by the proposed loan would be procured through internationalcompetitive bidding, under which suitable goods produced within Mexico wouldenjoy, as usual, a margin of preference of 15% on CIF prices or the prevailingcustoms duty, whichever is lower.

4.16 For the VhF/UHF and associated communications equipment (para 4.09),part of the foreign exchange cost (approximately US$10 million) will be metfrom the Second Railway Loan (825.-ME), with the balance to be met from theproposed loan. Funds from Loan 825-ME will be adequate to meet payments through1976, and, thereafter, the provision made in the proposed loan would financethe balance.

4.17 The freight cars, for which components will be imported under theproposed loan, will be manufactured by Constructora Nacional (CN), a state-ownedenterprise which operates efficiently on a conmmlercial basis and produces goodquality cars. Under the Second Railway Project, this enterprise secured thecontracts not only fcr the cars reserved for manufacture within the countrybut also for the cars tendered through international bidding. CN's factorieshave the capability to produce 3,000 to 3,500 cars per year; therefore, theMexican Government and N de M have requested, in keeping with the Government'spolicy of utilizing the optimum installed capacity, that 5,300 cars be purchased

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from Constructora. For these cars, the prices of which are subject to adequateGovernment control, the imported components will be financed by the Bank. Thecomponents, which are estimated to cost 18% of the price of the cars to bemanufactured by Constructora, will mainly comprise some steel sections, doorfittings, brake equipment, roller bearings, and axles, and will be purchasedby international competitive bidding (ICB).

4.18 At the same time, Mexico is a member of the Latin America FreeTrade Association (ALALC) and has negotiated preferences for the importationof lists of products originating in member countries of ALALC. Should offersbe submitted in international tenders from suppliers in ALALC countries,they would be awarded a preference of 15% or the difference in tariffs appliedto goods from within the ALALC countries and other external suppliers, which-ever is lower.

4.19 For imported goods, disbursements would be made on the basis ofCIF costs and, with respect to bids won by local suppliers under ICB disburse-ments, would be made on the basis of 100% of the exfactory costs. The Bankwould also finance 100% of the foreign exchange cost of consulting services.Any savings in the loan amount resulting from prices lower than estimatedmight be utilized to finance similar items in the ongoing program subject tothe agreement of the Bank. Annex 13 shows the estimated quarterly disburse-ments.

E. Ecology

4.20 The project does not envisage the construction of any new linesor the acquisition by the railway of any equipment or machinery that wouldcontribute signficantly to the pollution of the environment.

5. ECONOMIIC EVALUATION

A. General

5.01 The sustained growth of the Mexican economy in the period from 1940to 1970 was supported by the existence of a railway system which providedadequate capacity, at very low cost, to the increasing traffic volumes. N de M,by far the largest railway carrier, has played a crucial role in facilitat-ing the export and import of goods to the country and in connecting the variousinternal production and consumption centers. The prospects for continuedgrowth in the economy of Mexico depend partly on the success of the Govern-ment's efforts to strengthen the agricultural and industrial sectors, topromote exports and to encourage spatial decentralization in the country.In achieving these objectives, the transport sector, particularly the railways,has an important role to play. Accordingly, the Government has placed in-creasing emphasis on strengthening and modernizing the railway system, espe-cially N de M.

5.02 Revenue from freighlt tonnage on all railways increased at the rateof 5% per annum from the latter half of the 1960's to 1974. There has been

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a higher rate of increase of freight ton-km; for N de M, traffic grew from11 billion ton-km in 1961 to about 25 billion ton-km in 1974, or at about6.5% per annum, reflecting an increase of the average haul from about 440 kmin the early 1960's to more than 500 km in 1974. As a result, N de M, forthe first time, faced capacity problems to meet existing demand. Passengertraffic on N de M fluctuated from 34 million passengers and 3.1 billionpass-km in 1966 to a high of 35 and 3.5, respectively, in 1969, and to a lowof 25 and 3.1, respectively, in 1974. This entails an average decrease inthe number of passengers of 3.8% per annum in the 1966-1974 period; pass-kmhave not decreased, on average, reflecting an increase in average distancetraveled from 91 km in 1966 to 124 km by 1974. Very generally, there aremajor movements of food, domestic and imported raw materials, and consumergoods into the densely populated central region (the temperate south centralportion of the interior plateau centering on Mexico City), and outward movementsof manufactured products to all parts of the country and for export. In termsof ton-km, about 30% of the traffic comprises mineral products (mainly ironore), another 30% industrial products, about 20% agricultural products (mainlycorn, wheat and sorghum), and the remaining 20%, inorganic, petroleum andmiscellaneous products (Table 7). The heaviest trafficked corridors includethe Mexico-San Luis Potosi-Monterrey-Nuevo Laredo lines (US border), theMexico-Guadalajara Manzonillo lines (Pacific Ocean port), and the Mexico-Veracruz line (Atlantic Ocean port:).

B. Traffic Forecasts

(i) Freight

5.03 Freight traffic is expec:ted to grow between 1975 and 1980 at a fasterpace than hitherto as a result of major expansions under way in the steel,cement and oil sectors. A number of steel plants are doubling their existingcapacity, and a new one (Las Truchas) is being built, including the constructionof a new railway line to connect it with N de M's network. Sizable expansionsare also contemplated in the cement industry. The share of oil products movedby N de M is low, and it is expected to remain low in spite of large increasesforeseen in oil production because new pipelines are expected to absorb suchincreases. However, a number of industrial products tied to the developmentof the oil sector, such as fertilizers and petrochemicals, will increase theirproduction as well; a major portion of these commodities are being transportedby N de M and are expected to continue moving by rail.

5.04 N de M prepared a detailed study for 41 commodities, showing thechanges in traffic volumes since 1964 and those foreseen between 1974 and1980. Freight traffic is expected to increase by about 7.8% per annum inton-km during the 1974-1980 period and by about 5% per annum (close to thehistorical long-term growth trend) thereafter. The expected traffic growthin the initial six-year period fluctuates from a low of 0.8% per annum forthe group of commodities comprising petroleum products to a high of 12.7%for mineral products, which is acceptable. Iron ore and steel related traf-fic will account for 64% of the increase in ton-km. These forecasts are, toa large extent, insensitive to tariff variations since minerals, steel-relatedproducts, fertilizers and bulk cereals--which will account for about 65% of

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the 1980 traffic--constitute a captive traffic which can be carried at tariffsabove long-run marginal cost. For other commodities, which are mostly of bulktype, projections have been made conservatively, assuming generally low traf-fic increases.

(ii) Passengers

5.05 Forecast passenger traffic is conservatively estimated to increasemoderately from 1974 to 1980. It is expected that, with a badly neededincrease in fares (para. 6.09) and further canceling of several passengertrains, the decreasing trend in passengers in N de M will be compensated onlyby improved quality of service. It is also expected that the decreasing vol-ume of intercity traffic will be partially compensated by a moderate increasein suburban traffic in the Mexico City area.

C. Cost-Benefit Analysis

(i) Methodology

5.06 The economic evaluation prepared by N de M focuses on the 1975-1979Investment Plan globally and on particular components of the Plan, wheneverpossible. For evaluation purposes, the Plan has been divided into six cate-gories depending on the type of investment and its economic effects (Annex 14).These categories were evaluated separately, and, from the results, an overallevaluation of the Plan was derived. Details of the methodology and thecriteria adopted for the economic evaluation are given in Annex 14. Sensi-tivity analysis and first year benefits are in the same annex. Since the two-year Project is an integral part of the Five-Year Investment Plan and sincemost of the benefits will accrue only if the related investments in the Planare carried out, the Project itself has not been evaluated separately. Itwas agreed during negotiations that N de M will carry out all items of theInvestment Plan (para. 4.01).

(ii) Track Renewal

5.07 The Plan contemplates the purchase and installation of new railof 115 lb/yd on some 1,600 km of main line with a total cost estimated atMex$ 1,600 million in 1975 prices. Second-hand rail, set free because of theinstallation of new rail but which has not reached the end of its useful life,will, in turn, replace wornout rail; an additional 1,000 km of line will thusbe improved. In both cases, the improvements include the replacement of rails,ties and switches, after ballasting and reshaping of the embankments. Animproved track will avoid delays due to speed restrictions presently existingon most of the lines being improved because of the poor state of the track;without this investment, further reductions in travel speed are expected.Sizable savings in future maintenance and renewal costs are also expectedfrom the proposed investments. The quantification of these benefits is ex-plained in Annex 14. A separate economic analysis was carried out for eachof the nine lines being improved. Based on these benefits, the above invest-ment yields a rate of return of 14% for the entire program, with individualrates of return fluctuating from 12% to 23%, which is acceptable.

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(iii) Track Rehabilitation

5.08 In spite of recent efforts in conjunction with the Second RailwayProject, N de M's network still faces a backlog of deferred maintenance.Ballasting and replacement of ties and switches are included in this componentof the project, as well as the purchase of track maintenance equipment, witha total investment of Mex$ 885 million. The quantified benefits include impor-tant savings in future renewal costs and in track maintenance expenditures. Theproposed investment yields a rate of return of 21%, which is satisfactory.

(iv) Realignments and Bridges

5.09 Although practically all civil works associated with the construc-tion of railway lines in Mexico are normally the responsibility of SOP (para.3.03), N de M, in exceptional cases, carries out such works on its own.This is the case for the realignment of several minor sections of a numberof main lines and the construction of a number of bridges, culverts andretaining walls included in the Plan. The realignments reduce transportcosts by reducing the present steep grades in the corresponding sections.The new structures will increase the capacity of the corresponding main linesto carry the heavier cars and locomotives purchased in recent years. Theeconomic returns vary from 12% to 26% for the realignments and amount to 13%for the structures.

(v) Locomotives and Rolling Stock

5.10 One of the main components of the 1975-1979 Investment Plan is theprogram for acquisition of rolling stock and motive power, indispensablein order to meet the forecast traffic demand by 1979. Unless the proposedinvestment is carried out, 4.2 billion ton-km would have to be transportedby truck at higher cost (details are given in Annex 14). The savings intransport costs yield a rate of return of 16% on the proposed investment.

(vi) Shop Equipment

5.11 The Plan also contemplates the purchase of Mex$ 150 million worth ofshop equipment and the investment of Mex$ 500 million to continue the ongoingprogram of rationalization, modernization and expansion of shop installations.N de M estimates that the proposed improvements should conservatively avoida reduction in the availability of motive power and rolling stock of not lessthan 3% and 2%, respectively, as a result of fewer delays in the shops andsmaller frequency of non-programmed repairs due to better equipment mainte-nance. On such a basis, this component of the Plan would have an economicreturn of 22%.

(vii) Telecommunications and Signalling

5.12 The consultants TOPS On-Line have prepared an economic evaluationfor the entire telecommunications package financed under the Second RailwayProject (Loan 825-ME) and the proposed Third Railway Project (para. 4.09).The economic return on the total investment for the VHF and UHF communicationsnetwork and for a car control system to be installed under the Third Railway

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Project is estimated at not less than 25%. The CTC system included in theFive-Year Plan for control of operations on three high density lines isexpected to yield a rate of return of 35%. Details on the computation ofbenefits for these investments are given in Annex 14.

(viii) Other Miscellaneous Investments

5.13 About 11% of the investments in the Five-Year Plan have not beenincorporated into the above groups. They include the construction or improve-ment of parking lots, stations, warehouses, social facilities for staff,hospitals and health centers, and housing for laborers, in accordance withlabor agreements. They have not been included in the economic analysis.

D. Overall Economic Evaluation

5.14 Based on the benefits for the six groups mentioned above, whichaccount for 89% of the proposed Plan, the Plan would yield an economic returnof 17%, which is satisfactory. A sensitivity analysis indicates that, in theevent of an increase in costs of 15%, the total Plan, as well as its compo-nents, would still be economically justified (Annex 14).

6. FINANCES

A. Financial Position

6.01 From the time of N de M's creation in the late 1960's until late1974, its financial position had been deteriorating. Operating deficitsincreased from Mex$ 1,030 million in 1970 to Mex$ 2,218 million in 1974, a netincrease of 115% in current pesos. Freight rates were not increased between1959 and 1974; passenger fares were increased once in 1970, by 30% for firstclass and 20% for second class. However, the increase in salaries and materialprices has more than offset the financial benefits of increased fares. Theincome statement and the balance sheet for the years 1972 to 1974 are shownin Tables 8 and 9. The working costs have increased by Mex$ 1,542 millionbut the revenues increased only by Mex$ 556 million as a result of trafficincreases during the 1972-1974 period.

6.02 Failure to increase tariffs deteriorated the operating ratio from148 in 1972 to 173 in 1974 against the target of 127. The following resultsare observed from a traffic costing- study of 1974 N de M operations conductedby the Bank.

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-------------------- - 1974 - _-_________Long-Run Revenues Gross MarginVariable or (Loss)

Costs -

--------------------(Mex$ Million)-----------------

Freight 2,665 71% 2,635 89% (30) (4%)Passenger 822 22% 151 5% (671) (84%)Express 240 6% 110 4% (130) (16%)Mail and Other 34 1% 70 2% 36 4%

3,761 100% 2,966 100% (795) (100%)

Total fixed costs 1,907

Total deficit for 1974 2,702

The above table indicates that, while the passenger revenues were 5% of totalrevenues, the variable costs were 222 of total variable cost. Further,although passenger train operations are much smaller than freight operations,the deficits created by passenger trains are the largest--about 84% of thedifference between total revenues and total long-run variable costs. Thechronic deficit situation of the passenger services has long been noticed,but, in 1974, even freight revenues failed to cover long-run variable costs.

6.03 The financial projection -in the appraisal report for the SecondRailway Project (825-ME) assumed that freight tariffs were going to beincreased in early 1974. Such increase, however, was delayed until January1975. The reasons for delay were: (a) that the Government wanted to applya common tariff across the entire railway system in the country in accordancewith Section 3.05 of the Guarantee Agreement (825-ME) and to revise thefreight rate structure with adequate classification of the commodities andconduct cost studies in order to increase rates sufficient to cover at leastthe long-run variable cost, as suggested by the Bank; and (b) that theGovernment was concerned about the slowdown of economic growth in Mexicoand, for this reason, could not implement a railway tariff increase in 1974as it did in other public utility areas such as water, electricity, and gas.It maintained that tariffs could not be increased for all these essentialinputs at the same time. Therefore, tariffs were increased only in January1975 (para 6.04) and were applied uniformly across the whole railway system.As a result, the financial situation is showing considerable improvement, andthe expected operating ratio of 136 for 1975 is fairly close to the targetof 130 projected for the Second Railway Project.

B. Tariffs and Costs

(i) Freight

6.04 N de M increased the freight and express rates by an overall weightedaverage of 44% and 40%, respectively, effective January 1, 1975. There are 20rate classes for carload freight, varying from 34.25 centavos (2.7 US cents)per ton-km at class 1 to 9.9 centavos (0.8 US cents) per ton-km at class 20,for an average haul of 500 km. Individual commodities have been carefully

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allocated to the various rate classes according to the long-run variable costaf tranisportation, demand, and competition with other modes. Although thecarload freight rate increase was 44% on the average, the increase for indivi-dual commodities varied widely. The new rates will also absorD a part offixed costs in addition to fully covering variable costs.

6.05 Less than carload (LCL) traffic was about 0.2Z of total ton-kmin 1974. LCL operating costs are muclh higher than carload freight becauseof the uneconomic use of freight cars and the high terminal documentation andhandling costs. In 1974, its revenues were only about 17% of variable costsin spite of high rates, varying from 125% to 300% of the highest class rate(class 1) of carload freight. Included in the Plan of Action is the provisionthat N de M should carry out, no later than December 31, 1976, a study onthe economic impact of LCL traffic, and should progressively eliminate thelosses on such traffic.

(ii) Passenger

6.06 Passenger fares were increased, effective February 1, 1975, by anoverall weighted average of about 22%. This increase was insufficient tosolve the critical financial situation of passenger services. Even after fareincreases, the costing study (para 6.02) indicated that the 1975 estimatedrevenues would only be about 31% of immediately avoidable cost and about 19%of long-run variable cost. If further increases are not made or uneconomicservices are not reduced, rising costs will further deteriorate the financialsituation in the coming years.

6.07 It was agreed in the Second Railway Project that a program wouldbe presented by N de M to the Government for the curtailment or abandonmentof, and for fare increases for passenger services or for compensation oflosses on, uneconomic services. Out of some 54 intercity passenger trainservices, 1N de M has already discontinued 14 services and has received approvalfrom the Government to discontinue or modify an additional 10 services during1976. This leaves about 30 services, or 55% of the total services existingin mid-1974, to be continued in operation. These services are difficult todiscontinue because of social reasons. In view of the worldwide difficultyof eliminating uneconomical passenger train services and the improved positionof the railways in relation to other modes resulting from the energy crisis,the action taken so far by N de M is considered satisfactory. N de M agreed,during negotiations, to review further each year the operational and financialcondition of the remaining passenger trains in order to rationalize servicesand/or increase fares with the objective of reducing, progressively, theirfinancial losses. The Government has also agreed to pay N de M a specificsubsidy to compensate for the losses of those passenger trains which are notcurtailed.

C. Future Prospects

6.08 Based on the 1975 tariff increases, the traffic forecasts discussedin Chapter 5, and the proposed Investment Plan, a forecast of operating

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revenues and expenses was prepared for the years 1975-1979. It is shown inTable 8, and a summary is presented as follows:

1975 1976 1977 1978 1979------------(Mex$ Million)…--------

Operating revenues (excl. Governmentcompensation for unprofitable services) 4,707 5,180 5,957 6,506 6,844

Working (or cash) expenses 6,081 6,383 6,790 7,097 7,160Working (or cash) revenue (loss) (1,374) (1,203) (833) (591) (316)Depreciation 300 340 360 385 400Net operating loss 1,674 1,543 1,193 976 716Working ratio 129 124 114 109 105Operating ratio 136 130 120 115 110

The forecast is based on assumptions detailed in Annex 15. An average of 10%increase in freight rates was projected in real terms in 1977. The ratiosshown above are exclusive of Government subsidies and were adopted as targets,rather than those inclusive thereof,, because they provide the ultimate test ofGovernment and N de M performance in transferring the cost of railway serviceto the users. During negotiations, agreement was reached on the financialtargets indicated in the Plan of Action.

6.09 Since the above figures are based on the average tariffs, wages andmaterial prices prevailing in October 1975, it is assumed that N de M and theGovernment will take necessary action, including increases in tariffs, tooffset future inflationary rises in costs. Since 1973, Mexico, which had formany years enjoyed substantial price stability, entered into a period of in-flation. The GDP deflator index rose by 12% in 1973 and 23% in 1974. Al-though inflation slowed down somewhat in 1975, it is expected that wage adjust-ments are going to be granted periodlically and that the cost of fuel andmaterials used by the railways will continue to rise. Experience in the pastshows that, for most Latin American Railways, tariff increases always lagbehind increases of wages and other inputs, thus making impossible the achieve-ment of financial targets. To prevent this, it was agreed during negotiationsthat N de M should periodically make! timely requests to the Government toauthorize all necessary actions to be taken, including increases in rates,fares and other charges, to offset cost increases and achieve the financialtargets. Agreement was also reached that N de M would review with theGovernment each year the progress made in attaining financial targetsduring that year and would formulate! the action required for the followingyear.

6.10 If action is taken by N de M and the Government on the above-mentioned points, the working and operating ratios will show a gradual improve-ment in the financial situation, thus decreasing them from 129 and 136 in 1975to 105 and 110 in 1979. Table 8 demonstrates that the total revenues will risefrom MexS 4,707 million in 1975 to Nex$ 7,109 in 1979, a net increase of 51%, whilethe operating costs will rise from Mex$ 6,381 million to Mex$ 7,560 million, a netincrease of only 18%. The average freight revenue per net ton-km in 1979 willbe 15.0 centavos (US$0.012) as compared with 10.0 centavos (US$0.008) in 1974,an increase of 50%. With such financial improvements, N de M should be able

- 21 -

to meet, with its own operating revenues, all operating costs and intereston debts by 1983 and all operating costs and debt services by 1986; this wasagreed as part of the Plan of Action.

6.11 Under Loan Agreement 825-ME, N de M agreed to conduct cost studiesof 34 low density traffic branch lines and to propose action on them accord-ingly. In view of this, N de M has already abandoned seven lines, curtailedservices on another seven lines and is in the process of making a decisionregarding six more lines. N de M will complete the studies of the remaininguneconomic lines in 1976 and 1977 (Annex 7). N de M agreed, as part of the

Plan of Action, to perform periodically a cost analysis of low density branch

lines and to recommend to the Government that it either permit abandonmentof uneconomic lines or pay compensation to eliminate the deficit.

D. Financing Plan

6.12 A cash flow and financing plan is given in Table 10 and summarizedbelow. Details of the assumptions used in preparing this financing plan aregiven in Annex 16. Since the project items extend into 1978, the financingplan was prepared to include the total period of the Five-Year InvestmentPlan, 1975-1979.

1975 1976 1977 1978 1979 Total Z____________- (1975 MexS Million) -- ------

Requirements of Funds

N de M operating deficits(excluding depreciation) 1,674 1,143 843 656 451 4,767 18

Estimated debt repaymentsLocal 886 829 852 1,137 1,113 4,817 18Foreign 748 980 947 968 846 4,489 16Capital investment 2,492 2,669 3,103 2,411 1,782 12,457 46Other 181 120 110 100 100 611 2

5,981 5,741 5,855 5,272 4,292 27,141 100

Sources of Funds

N de M depreciation 300 340 360 385 400 1,785 7Government Contribution 3,189 2,732 2,392 2,386 2,210 12,909 48

LoansLocal 840 1,063 1,823 1,792 1,359 6,877 25Foreign 1,652 1,606 1,280 709 323 5,570 20

5,981 5,741 5,855 5,272 4,292 27,141 100

6.13 The financing plan depends to a large extent (48%) on appropriationfrom the Government budget. The remaining sources of funds will be the WorldBank, foreign banks (Exim Bank, Swiss Bank and Export Development Bank Canada),

local banks and internally generated funds through depreciation reserves.During negotiations, the Government agreed that it will provide funds or

- 2i2 -

arrange financing as needed by N de M to meet the expenditures required forthe carrying out of the railway operations and to execute the InvestmentPlan satisfactorily and in a timely manner.

6.14 The summary balance sheets of N de M are shown in Table 9. Debtshave been increasing from Mex$ 2,331 million in 1972 to Mex$ 4,773 in 1974 and areexpected to reach a high_of Mex$ 7v,781 millior' by 1978, then to start decliningto Mex$ 7,524 million by 1979. Since the railway revenues were insufficient torecover even the costs of operations, the Government has been paying debtservice charges. However, in accordance with the proposed Plan of Action,the total Government financial burden would gradually decline from Mex$ 3,189million in 1975 to Mex$ 2,210 million in 1979. The cash and bank balance in1974, although larger than in 1972, was still about one-half of the averagemonthly cash requirement, but from 1976 it will show improvement. The railwayinventories and receivables will grow simultaneously with traffic, operatingexpenses, and revenues. In 1979, debts will be about 26% of total capitali-zation.

6.15 N de M is not expected to achieve financial viability before 1986,but it will have established a path to financial recovery, provided futureborrowings are carefully controlled and limited. During negotiations, agree-ment was reached that, unless the Bank agrees, N de M will not incur any shortor medium-term loans (under five years) after 1976 if the total of such loansoutstanding at any time, including t'he debts to be incurred, exceeds 10% oftotal capitalization. 1/

E. Accounts, Budget and Audit

(i) Accounts

6.16 N de M uses the same accounting methods as the US railways. In 1974,with the help of consultants TOPS On-Line, it designed a good traffic costingsystem. However, the balance sheets still need improvement because fixedassets show historical values which depart considerably from current values.In view of the recent high rate of inflation, current values of these assetsand the related depreciation charges would be higher than they appear in N de Mbooks. N de M has already started preparatory work toward the revaluation offixed assets and expects to complete such exercise by December 1976. Theresults of this revaluation will be used internally for costing and for rate-and fare-setting purposes. Furthermore, N de M intends to officially incor-porate the new values of assets as soon as the special accounting rules whichare now being studied by the Government in that respect would allow them todo so.

(ii) Budgets

6.17 N.K-de M submits its annual budget to Hacienda on September. 1 of eachyear. Based on the approved annual budget, N de M receives subsidies from theGovernment periodically throughout the year; these subsidies have been regularand adequate in recent years.

1/ Total capitalization means the total debt plus Government capital con-tribution, subsidies and grants less accumulated deficit.

- 23 -

(iii) Audit

6.18 As required under Loan 825-ME, N de M accounts are audited by thePatrimonio Nacional, but, for the last few years, Patrimonio has appointedprivate auditors to perform an independent audit. These au.-tors have beensubmitting their reports to the Bank satisfactorily through N de M. Duringnegotiations, agreement was reached that N de M will continue such annualaudit satisfactory to the Bank.

7. AGREEMENTS REACHED AND RECOMMENDATION

7.01 During negotiations, agreement was reached on the following points:

(a) No-additional SOP works for new projects on the railwaysfor items totaling more than US$10 million (annually) tobe undertaken during the period covered by N de M's Invest-ment plan without the Bank having had the opportunity toreview and comment upon the feasibility studies involved(para. 3.03);

(b) Implementation of N de M's Plan of Action (paras. 4.01, 6.08,6.10, 6.11 and Annex 6);

(c) N de M to carry out all items of the Investment Plan and to makeno additions or new investments over US$20 million without consul-tation with the Bank (paras. 4.01 and 5.06);

(d) N de M to review, each year, the operational and financialcondition of the passenger train services and, on the basisof such review, take action to reduce, progressively, thelosses from the operation of these services and the Govern-ment to pay specific compensation for the uneconomic passengerservices not discontinued (para. 6.07);

(e) N de M to periodically make timely requests to the Government toauthorize all necessary actions to be taken, including increasesin rates, fares and other charges,to offset cost increases andachieve financial targets (para. 6.09);

(f) N de M to review with the Government each year the progressmade in attaining financial targets during the year and toagree on the action required for the following year (para. 6.09);

(g) The Government to provide funds or arrange financing as needed byN de M to meet the required expenditures for the Investment Planand the operation of the railways (para. 6.13);

(h) Debt limitation covenant (para. 6.15);

(i) Audit of N de M accounts (para. 6.18).

7.02 The project provides a suitable basis for a Bank loan of US$100million for a term of 25 years, including a grace period of four years.

March 15, 1976

MEXICO

THIRD RAILWAY PROJECT

Oi-,aat BR"! Stock )ta

UP TO 5 10 15 20 25 30 35 40 Over 40 TOTAL

DIESEL LOCOMOTIVE

600-1200 HP (SG) - - 16 43 20 3 8 - 90

1310-1350 " - - 44 32 - 13 - 89

1500-16000" 60 - 2 5 70 2 - - - 139

1750-1800 45 1 180 48 ;4 - 288

2400-2750 - 71 60 - - - - - - 131

3000-3600 217 41 - - - - - _ _ 258

322 113 302 128 104 18 8 995

807 HP (narro. gauge) 3 7 9 -- - 19

TOTAL 325 120 311 128 104 18 8 _ 1,014

FECIGHT CARS (SC)

BOT CARS 5,106 1,642 4,607 4,009 93 1,194 289 58 22 17,020

GONDOLAS 2,299 1,474 437 135 325 89 89 85 125 5,058

CATTlE CARS - 17 193 94 - 5 - 94 124 527

FLAT lARs 114 48 126 175 2 4 2 - 138 609

HOPPER CARS 55 297 123 441 - - - 38 954

TANDK CARS 2/ 250 - - _ 3 _ 2 1,262 1,517

'AB0QOOIL 120 39 103 150 - - - - 165 571

7,944 3.517 5,589 5,004 4Z0-- 1,295 3YD 239 1,874 26.262

PASSENGER CARS (SG)

DIESEL RAILCARS - 40 - - - - - - - 40

EXPRESS AND MAIL 23 - 74 116 51 7 115 20 37 28 471

SECOND CLASS - 67 88 13 3 67 32 1 27 79 374

FIRST/SECOND CLASS - - 7 - - 2- 2 - - 16 27

FIRST CLASS 15 2- - 47 1 - 57 5 127

SLEEPING - - - 9 86 62 10 - 25 192

OTHEPS 5 - 3 61- 2 20 40 16 22 44 158

28 199 219 75 229 252 47 143 197 1,389

NOTES: 1/ Standard Gauge.2/ Tank cars re mrotly for N de M' OWn service traffic; public bulk

oils are carried in PEMEX owned cars.

3/ Mostly second hand units; construction date unknown

* Years of age - Rolling stock is classified agewle.

SOURCE: N de MDATE: May 1975

TABIZ 2

15138 8421818 ~PW9021

106 1970 1971 1972 1973 1974

ko,t- c oprtd - ed-rd gang. 13,248 13.492 13,276 13,344 13,42 6 13,538- aroma gerge 3~~ ~ ~~~~~~~~~~~~~~~ ~ ~~~03 418 675 678 664 640

- Tote1

13,753 13,910 13,951 14,022 14,090 14,023

TrafCIc 78 33229.3 29.1 23.8 20.0Peesenser - ntinra (million) ~~~~~~~~~~~~~~~~~~~~~3 33,2 56 3,286279315

Pan.sage- km (mlin ,121 3435 2,73 311Freight - too - rovecos carrying (million) 7~~~~~~~~~~~~~~-2.9 36.3 39.4 41.8 44.4 5.

-Fsrvie h5 .51.5 1.5 1.5 1.4 1.6- local ( ' 7 7~~~ ~ ~~~~~~~~~~~~~~ ~ ~~~~4.4 39.8 60.9 43.3 63.0 1.

Freight cel too - km - freight trn,fl5 (milliOn) 14,922 17,711 18,436 21,193 22,662 25,33921,13 22,66 25,33- ire rig" 656 688 711 696 843 765

- other Irrios ( 5 ~~~ ~ ~~~ ~ ~~~ ~ ~~~ ~ ~ ~~166 20 198 178 236 209- tnl 1,4 18,605 19,345 22,067 23712,1

of ahith - artoon re-ying ( )14,845 10,099 19, 147 21,899 23,505 25,756- aervite ( ' ) 381 584~~~~~~~~ ~ ~~~ ~ ~~~~~~~~~~ 18178 236 557

preoge ",oill (.)92 1036 111 11I3 117 15Averge frihp el.evm teyn (kn)41 43 452 464 482 492

Train km. ..psseg-r (000~) 16,290 16 033 13,852 15,916 14,161 13,926-m. . ined (. 3,93(3 3. 894 3 936 4,001 3,907 3,806freight n717,875 19,023 19.040 20.1151 20,4(10 21 693

-service (0) ~~~~ ~~~ ~ ~~~ ~ ~~~ ~ ~~~ ~ ~~~~~~127 144 121 134 153 133told ( 7 ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~~38,225 39,094 38,949 40,202 38,639 59,560

Reica tk (00 292 993 1.011 1, 028 1,036 510LoR.entv km ( penogo 16,564 19,869 22,161 22,540 19, 844 19. 681

--t- riP..ed9 4,080 4,214 4,323 4,634 4,696 4,525- foigh 25,266 31,599 36.902 39,459 40. 799 46.621-1 srvic 307 306 224 166 160 166

-yard 6,187 6,0 4,730 4,111 7,233 6,36- corel ~~~~~~~ ~~~~~~~ ~~~~~~~ ~~~~52,406 62,372 68,542 70,926 72,748 778360tmvvhce m-pnone arin1mlic 108. 111. 105. 13893.0 87.2

-hegoege 8.2 6.3 3.2 3.2 3.4 3.2~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~3 2 .- ri110 14.7 007.9 12.2 1.

19.5 182 18.8 19.8 28. 21.- total 141.7 131.0~ ~~~~~~ ~~~~~~ ~ ~~~~ ~ ~ ~~~~ 1385.8 134.5 130.6 128.0

Averegentonbet of ehuiiec per trelo -peen- tan 7.4 7.5 7.2 7. .2 7.3.- b- f -hi0- P- - ovd crlepees... rat 1.) 3 3 3.2 3.2 3.2 3.1

- freight 7.1 7.~~~~~~~~~~~~~~~~~~~19 7. 7.1 7.8 7.9-tria 1.1. 11.2 12. 10.3 11.0 11.0

Average comber of pCeCOOgOtt per crelo-peseenger items 1~~ ~ ~~~ ~ ~~71 104 17 7017 245-eiredtreioa 88 71 68 70667

Averge -b-t of pa-eoger Per Pacogef -ehirlr 29.4 30.7 30.8 31.7 29.8 33.0

Avornin ..c-toni loo 1- fteighc traice (tnos) 312 9371 968 1,031 1,113 1,160-mixe 0 ( 7 67 177 10 174 216 201

Arorefo grese trair lord - freight teams (tons) ~~~~~~ ~~~~~1, 92 1, 906 1.863 2,00 2,050 2,110i- m d r 70712 527 532 513 570 496

-rn o-k. freight servi-o (million) 29,103 36,222 35,467 40,468 41 690 46,806- minad 7 r 7 ~~~~~ ~ ~~~~~~~~~~~~~~~~~2,415 2,051 2,093 2,054 2,229 1,884

-role1 I. I r 31.118 38,273 30,540 42,522 43,919 49,221

-igrihi oa-Inn loaded (Illon) 4.3.0 473.8 446.2 499.7 520.6 340 .9I py 232.2 289.8 760. 306.1 319.1 326.7

-total 649.2 763.6 734280.837976p- protage loaded tn cotni '2.1 63 .1 62.1 62.0 164.0

Oervir...blnror-deys (000) 11 721 14,110 14.339 14,984 18.295 19030Averge ce load, 1oeded cer only (tc)2. 39.3 45.4 49. 46. 47.8N-ohe f -- r Iboded (00927 1, 013 869 913 852 1,089

Ernigh t oar corvaroond oeaedys:26 13. 16. 158 19.2 .Avrfoee f -r per freight lenlo- loaded :,2. 1 24.0o 22. 23. 294.5 25.

- oply :3.5 14.6 14. 14.86 13.2 14.9- cetel :3~~ ~ ~~~~ ~ ~~~~ ~ ~~~.6 38.4 37.0 38337.7 40.3

Noonher o ltomcvele -i tc 435 Nil - -H-b- f 1- i.. St-o of soini 08-k-

-vtait .337 0 -die -. ir I etoc 759 813 856 901 995 1,014

..00 of -ri-e 16 81 133 134 159 150-in traffi 703 754 721 767 836 866

-lc i-Ioat-k 9 9 9 9 9 9- ovt of service ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~4 4 4 4 5 3

- to craffir 3 ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~~~5 5 5 4 4Dlineo.l locomoives-otof erce7.1 73 16.0 1. 601.

- obe v rffic-asegrtris135 132 137 140 150 152-oleed 3~ ~ ~~~~~~~~ ~ ~~ ~ ~ ~~~2 52 54 55 48 53

f- ivght 396 419 400 455 513 539y-yads acd -i-lo 120 132 121 117 123 168

- Ttal 703 734 721 767 836 910Thotor of frtiihbcre N. do 8, Iv s-ec 10,807 21,4014 21,681 22, 241 23.272 25,411

icoffi- N dn1. cr 14,427 180,62 10,634 19,6833 20,239 21,752-oher -eiecril rey rae967 1,32)8,099 9,092 9.2D4 9,017

- orio 4,2914 12,301 12,165 19,680 31,450

, Perigo rail nay rea 7 ,8To.tal 32,113 38.877 39,83 40,940 49,123 32,218

Oib-r of crrtof -erico -de M1rr 1,180 2,032 1,6071 1,3306 1,280 1,093-eher cen49 243' 330 399 6041 349-T.teI 1,3 28 2,205 2,001 1, 733 1761 1,442

Cotal vomber of rare ov live ~~~~~~~ ~~~~~~~ ~~~~~~~~33,142 40,972 41:,835 42,675 50,884 53,661N n9raevother litre 1,200 1,370 1,00 1,20 1,681 05 ' 2,02Pr-cgboner. 7of N do 9 rar oot of ervi-e 07 9.6 7.760355.

rear prpesce tank 171.3 191.0 182.7 183,0 173.3 203.freight onc co-Inn per freigh trai _km 741:.2 883.1 077.6 956.7 1,913.0 1,160.0

Locomotve - In par Iesllcmtv t ofi-raen 12,0 130,700 138,506 161,000 139,693 14,061- ine 75, 90 6140 83,2759 06,345 97,833 7180f-fright 61, 00 75,6000 90,224 06,723 79,221 83,10-avrge 78,300 89,0 94,754 90,990 91,39 97,691

Lor-mtio- inn per Omenl looo iveiveck 71,,00 83,100 79,810 77,4203 7'3,.105 76,291TrloIn e trei. .. herseg-r4 41. 41.4 40.9 38.8 40.1

-freight 2V. 22. 21.0 21.4 19.9 29.4- rila- 6:9.0 66. 83.3 61.2 52.9 42.2

esPr-ger cra- -rlivo~ on tOme 891.4 67.02 65.7 58.3 45.1 49.67.tl R cers arivv cv -oe504 63.3 54.3 33.5 24.3 495.2r-ighti co i pe- -eri-ble a day 1,0 0,318 1,330 1,473 1,298l 1,3~83

-o , . 56,0 3 4.1 50.55364.4'

im.ev7gr- km, per o1t. n -i tan-oded 30.8)-.

eapty ~~~~~~~~~~~~~~~~~~~38.6 37.0 38 9

Joly 1975

P00RD RAILWAY fKOJECT

Inneanoant rpin, (1975-1979) to PrOReRt (1976-1977)

(c6e HiAllion)

P L A N P R 0 J E C T--- 1975 --- … ---… -9--7--------197 -------- 1 979 …1-1977 … ---- ----- 1978--------- ----- 1979--------- ----- 1975-1979------- ------ 1976-1977tOCAL FOREIGN TOTAL LOCAL FOREnIN TOrAL LOCAL FRSEIGN TOTAL LOCAL FOREI2N 70TAL LOCAL rDRslCN TO7AL LOCAL F0YEICN TOTAL LOCAL FOREIIN TOTAL

1. TRACK ANID STROCTUOES

1. T-REk Renewal - New Rail 127.1 171.9 299.0 141.4 161.9 303.3 117.9 119.4 237.3 123.7 125.0 248.7 135.4 144.6 280.0 645.5 722.8 1,368.3 239.3 281.3 540.62. Trod Renewal -

2nd hand rail and Renr-I

of laapaa 4 hllcat defern-d o-ot. 52.0 105.4 157.4 74.4 41.1 115.5 97.9 75.0 172.9 68.9 75.0 143.9 66.7 75.0 141.7 359.9 371.5 731.4 t72.3 116.1 288.43. aoal4g-went 2.2 - 2.2 17.0 - 17.0 37.0 - 37.0 26.6 - 26.6 - - - 82.8 - 82.8 34.0 - 54.04. Ytrd and SLta-loa - elre 5.9 - .9 19.8 - 19.8 19.4 - 19.4 - -- - 45.1 - 45.1 39.2 - 39.2

S. Brldgaa - *tre-nthen 26.8 - 26.8 44.0 - 44.0 41.0 - 41.0 44.5 - 44.5 44.4 - 44.4 200A7

- 200.7 85.0 - 85.06. WRt-r and Foal EqoEpoent 0.7 - 0.7 1.5 - 1.5 2.9 - 2.9 3.0 - 3.0 2.6 - 2.6 10.7 - 10.7 4.4 - 4.47. Welghtng Platfr - - - - 1.4 - 1.4 0.9 - 0.9 0.1 - 0.5 2.8 - 2.8 1.4 - 1.48. Tr-ck Mahi.nny and Eqoilpoen 8.0 13.1 23.1 10.0 23.1 33.1 4.7 72.7 77.4 4.6 41.7 46.3 4.0 23,9 27.9 31.3 176.5 207.8 14.7 95.8 110.59. FIeld Eqolp- nt 0.2 - 0.2 0.5 - 0.5 0.6 - 0.6 0.7 - 0.7 0.8 - 0.8 2.8 - 2.8 1.1 - 1.1

10. Dncheigal Den nd Soporr-aton 7.7 - 7.7 9.0 980 9.3 - 9.3 9.6 - 9.6 9.9 - 9.9 45.5 '- 45.5 18.3 - 18.311. 8oacnllanoona 8.4 0.7 9.1 5.4 1.1 6.5 5.9 1.2 7.1 5.1 1.0 6.1 3.6 0.8 4.4 28.4 4.8 33.2 11.3 2.3 13.6

Sob-Ton-l 239.0 293.1 532.1 323.0 227.2 550.2 338.0 268.3 60643 287.6 242.7 530.3 267.9 244.3 512.2 1,455.5 1,275.6 2,731.1 661.0 495.5 i.1S6.5CRAttn.g.cte Phy.i..l 57. I/ 16.9 11.4 30.3 14.4 12.1 26.5 13.4 12.2 25.6 44.7 37.7 82.4 16.9 13.4 30.3Sab.Totl .mth phyala1 oRtiRnganni.. 2/ 239.0 293.1 532.1 323.0 227.2 550.2 354.9 281.7 636.6 302.0 254.8 556.8 281.3 256.5 537.8 1,500.2 1,313.3 2,813.5 677.9 508.9 1.186.8Contingen-lca PrEtn 151.2 38.9 230.1 17588 96.8 272.6 208.2 128.3 336.5 535.2 304.0 839.2 151.2 78.9 230.1Total 239.0 293.1 532.1 323.0 227.2 55D.2 506.1 360.6 866.7 477.8 351.6 829.4 489.5 384.8 874.3 2,035.4 1,617.3 3,652.7 829.1 587.8 1,416.9

II. CONSTRUCTION WOORR

1. Yrd., E-.eo t. t Rarthwor-k 12.7 - 12.7 38.7 3.0 41.7 65.5 - 69.5 68.8 68.8 69.3 - 69.3 255.0 3.0 258.0 104.2 3.0 107.22. bLen Eloe -.hopa co othera 33.1 - 33.1 52.4 _ 5z.4 147.6 - 147.6 111.4 - 111.4 85.2 - 85.2 429.7 _ 429.7 200.0 _ 200.03. Station bildleo./affln.. 21.0 2 71.0 10.4 - 10.4 44.4 4 44 50.4 - 50.4 56.3 - 56.3 182.5 182.5 54.8 _ 54.84. Staff ho-aOe8 11.0 - 11.0 5.4 - 5.4 75.0 - 75.0 150.0 - 150.0 225.0 - 225.0 466.4 - 466.4 80.4 - 80.45. Hoapitl and weifara Wtldidnga 11.9 - 11.9 16.3 - 16.3 28.9 - 28.9 35.6 - 35.6 37.5 _ 37.5 130.2 - 130.2 45.2 - 45.26. MIla-aian*oue 2.8 2.8 6.0 - 6.0 2.2 - 2.2 2.6 - 2.6 3.1 - 3.1 16.7 - 16.7 8.2 _ 8.27. EnSgnn-r-lg and aeperolalon 11.7 - 11.7 13.0 - 13.0 21.0 _ 21.0 31.0 - 31.0 41.0 - 41.0 117.7 - 317.7 34.0 - 34.0

Sob-Total 104.2 - 104.2 142.2 3.0 145.2 384.6 - 368.6 449.8 - 449.8 517.4 - 517.4 1,398.2 3.0 1,601.2 526.8 3.0 529.8CDnninaanalaa Phyaicol S% 19.2 19.2 22.5 - 22.5 25.8 _ 25.8 67.5 - 67.5 19.2 - 19.2SuhbTotoI wIth Phyailal noncleaowe 104.2 1 184.2 142.2 3.0 145.2 403.8 - 403.8 472.3 - 472.3 543.2 _ 543.2 1,665.7 3.0 1,668.7 546.0 3.0 549.0Conllnonnciea PrIce _ . 172.0 - 172.0 274.9 _ 274.9 401.9 - 401.9 848.8 _ 848.8 172.0 - 172.0Total 104.2 - 104.2 142.2 3.0 145.2 575.8 - 5n.8 747.2 - 747.2 945.1 - 94.1 2,51435 3.0 2,517.5 718.0 3.0 721.0

in. SIGNAL, TELECOM AND ELECTRICITY

1. VIS/IJr Sy.tao 4.4 57.9 62.3 78.0 226.0 304.0 3.9 21.4 25.3 - - - 86.3 305.3 391.6 81.9 247.4 329.32. Signa1. - CTC _ _ . 10.9 _ 10.9 28.0 55.0 83.0 23.0 38.0 61.0 1.1 - 1.1 63.0 93.0 156.0 38.9 55.0 93.93. Ellctrloly Supply - - _ 10.7 - 10.7 6.7 - 6.7 6.9 _ 6:9 7.1 7 2.1 31.4 _ 31.4 17.4 _ 17.44. -perarton.l Control Sy.-.n (In-rodo--oey) - - 11.3 14.0 25.5 3.5 2.5 6.0 3.5 _ 3.5 5.8 3.0 0.8 24.3 19.5 43.8 15.0 18.5 31.53. 1ot-rnal Telno1n - Oorkahora-ttora.-OoarIt.l 4.9 - 4.9 1.0 _ 1.0 1.5 - 1.5 1.3 _ 1.5 1.3 - 1.5 10.4 - 10.4 2.5 _ 2.56. innrnal Tole-- - Tada - - - 3.0 _ 3.0 2.5 - 2.5 . - _ 5.5 - 5.5 3.0 _ 3.07. intoned TeleRoI - alir de Onalno_

daf-raed n.io ..na.Rw - _ -_ _ 4. 4.0 2.0 - 2.0 2.0 . 2.0 8.0 _ 8.0 4.0 - 4.08. Englnearire and aap-rialon (le-al) 6.5 _ 6.5 8.0 - 8.0 9.0 _ 9.0 10.0 - 10.0 10.0 _ 10.0 43.5 - 43.5 17.0 - 17.09. Ml.collaeao.. 5.1 . 5.1 25.6 0.1 25.7 1.3 0.3 1.6 0.8 0.2 1.0 0.1 - 0,1 32.9 0.6 13.5 26.9 0.4 27.3

S.boTotal 20.9 57.9 78.8 145.7 240.1 385.8 60.9 79.2 138.5 50.2 38.2 88.4 27.6 3.0 30.6 305.3 418.4 723.7 206.6 319.3 525.9Contigen-iw Phy.in.I 57 - -. 2.8 2.9 5.7 2.5 1.9 4.4 1.3 0.2 1.5 6.6 5.0 11.6 2.8 2.9 5.7Sobh.oaal wInh phyoo-al Oontonaoariaa 70.9 57.9 78.8 145.7 240.1 385.8 63.7 82.1 145.8 52.7 40.1 92.8 28.9 3.2 32.1 011.9 423.4 735.3 2049.4 322.2 532.6Cenltasencioa Print . - 27.1 23.0 50.1 30.7 15.2 45.9 21.4 1.6 23.0 79.2 39.8 119.0 27.1 23.0 50.1Tonal 20.9 57.9 78.8 145.7 240.1 385.8 90.8 105.1 195.9 83.4 55.3 130.7 50.3 4.8 55.1 391.1 463.2 854.3 236.5 345.2 581.7

HRXICO

THIRD RALWAY PROJECT

Invaseateo Plan (1975-19791 to Project (1976-1977~

(Hao$ Million)

P L AN p R IECTED- --- 1973 … 19--76--… 1977---- … 1978…197877-…1--97-3---1979-79…-19--76--1179-97-7-- - -- 975199-- -- - -. -971

LOCAL FOREIGN TOTAL LOCAL. FORIGN TOTAL LOCAL FORIGN TOTM LOCAL P0831G2 TOTAL LOCAL FORIGN TOTAL LOCAL FOREIGN TOTAL LOCAL FORRIOR TOTAL

IV L-OCC88OTIVOS. ROLLING STOCK. ETC.

1. Locneti-e 19.4 318.9 335,3 431.2 451.2 - 110.1 150.5 - 456.3 456.3 - 6R.0 6R.0 16.4 1444.9 1491.3 - 601.7 601.7

2. Freight cae/akubses 499.1 1051.9 1531.0 439.1 331.2 770.3 1073.4 390.9 1374.3 1043.5 143.6 11R7.1 403.2 129.2 534.4 3460.3 1936.0 1397.1 1512.3 632.1 2144,6

3. Axles end roll. er ar#inRs 4.9 12.9 17.R 1.7 3.6 5,3 9.0 28.5 37.5 6.0 19.0 25.0 3.0 9.3 12.5 24.6 73.3 FRi1 10.7 32.1 42.8

4. 14a11 van (30) - 6.7 Rf7 - 78.1 7R.1 - - - - - - - - - - R6.R R6.R - 76.1 76.1

5. Pasean8sr Coaches (200) -- 3.0 249.3 252.3 - 295.6 295.6 - 10.0 10.0 - - 3.0 554.9 537.9 3.0 564.9 547.9

6. Train Li8htin &quipsoet 4.0 - 4,0 3.9 - 3.9 10.0 - 10.0 6.0 - 6.0 6.0 .. 6.0 29.9 - 29.8 13.8 - 13.8

7. Workshop M.ohfosry 0.9 19.7 20.3 2.9 4.1 7.0 16.6 31.9 48.7 15.1 27.4 42.5 7.7 6.7 14.4 43.1 99.8 152.9 19.7 36.0 55.7

8. Work Servioc Vehicles 6.0 - 6.0 11.0 - 11.0 10.0 - 10.0 12.0 - 12.0 12.0 - 12.0 51.0 - 31.0 21.0 - 21,0

9. Office and other eqoipset 10.0 - 10.0 14.0 - 14.0 11.0 - 11.0 12.0 - 12.0 12.0 - 12.0 39.0 - 59.0 25.0 - 25.0

10. Mienolann. s41.3 3.7 44.9 27,9 ~5.7 33.6 19.3 3.7 - 22.0 14.3 3.9 17.4 3.2 0.7 3.9 105.0 16.7 121.9 46.2 9.4 55.6

Snk total 591.2 1395.0 1970.0 503.4 1123.2 1926.6 1149.5 911.1 1959.6 1109.1 659.2 1768.3 449U. 214.1 663.2 3792.3 4203.4 7995.7 1651.9 1934.3 3586.2

COntinganc iee Physical 5% 37.4 40.6 90.0 55.5 32.9 88.4 22.5 10.7 23.2 135.4 84.2 218.6 57.4 40.6 98.0

Oub total with physical ... tT9SOlS 592.2 1393.8 1979.0 503.4 1123.2 1626.6 1283.9 851.7 2057.6 1164.6 692.1 1856.7 471.8 224.8 696.4 3927.7 4207.6 0215.3 1709.5 1974.9 3684.2

Contingencies Prioc 313.7 239.5 752.2 677.8 263.0 940.8 349.0 112.4 461.4 1340.3 613.9 2154.4 513.7 238.5 752.2

TotL1 582.2 1393.8 1970.0 303.4 1123.2 1626.6 1719.6 1090.2 2809.8 1842.4 935.1 2797.5 920.8 337.2 1157.8 5469.2 4901.3 10369.7 2223.0 2213.4 6456.4

V CONSULTING SERVICES

1. loca for Bridge, work con... e-tc. 0.5 - 0.5 12.5 - 12.5 14.8 - 14.8 19.3 - 19.3 21.9 - 21.9 89.0 - 69.0 27.3 - 27.3

2. Foreign for talacon, opcr.,eorhops art. - 1.3 1.3 - 9.5 9.1 - 2.0 2.0 - 2.9 3.9 - 3.9 2.9 - 17.2 17.32 10.1 10.1

Souk Total 0.5 1.3 1.8 12.5 8.1 20.6 14.8 2.0 16.9 19.3 2.9 22.2 21.9 2.9 34.8 69.0 17.2 96.2 27.3 10.1 37.4

C-nting.-ene phoysical. 57. - - - - - 0.7 - 0.7 0.9 - 0.9 1.0 - 1.0 1.6 - 2.6 8.7 - 0.7

Sub total with physical ceatingeies 0.5 1.3 1.0 12.5 8.1 20.9 15.5 2.0 17.5 26.2 2.9 23.1 32.9 2.9 25.8 71.6 17.2 68.8 29.8 18.1 39.1

C-ncfgRcncias Prioa-. - - 6.6 0.5 7.1 11.7 1.1 12.8 16.9 1.5 18.4 55.2 3.1 58.3 6.6 0.3 7.1

Total 0.3 1.3 1.9 12.5 8.1 30.8 22.1 2.5 54.6 31.9 4.0 35.9 39.8 4.4 44.2 106.8 20.3 127.1 54.6 10.6 45.2

VI SOI8IIY

Trak and st-rucura 239.0 293.1 552.1 323.0 227.2 530.2 338.0 268.3 606,3 287.6 242.7 550.5 267.9 244.3 512.2 1455.5 1275.6 2751.1 681.0 495.3 1156.5

Coos Ltruio works 104.2 - 104.2 142.2 3.0 145.2 584.6 384.6 449.8 - 649.8 017.4 - 517.4 1598.2 3.0 1601.2 526.8 3.0 329.8

Signl Tslete and Electricity 20.9 57.9 78.8 145.7 240.1 388.8 60,9 79.2 140.1 50.2 38.2 88.4 27.6 3.0 30.6 305.5 418.4 723.7 206.6 319.3 525.9

1.on,tiv-s Ri. Stoo. ato. 582.2 1393.8 1979.0 503.4 1123.2 1626.6 1148.5 811.1 1959.6 1109.1 659.2 1768.3 449.1 214.1 663.2 3792.3 4283.4 7995.7 1631.9 1954.3 3386.2

Consulting Services 0.5 1.3 1.8 12.5 8.1 20.9 14.8 2.0 16.8 19.3 2.9 22.2 21.9 2.9 24.8 69.0 17.2 88.2 27.3 10.1 37.4

Total (without cotingenc.ies) 946.8 1749.1 2694.9 1126.8 1601.8 2728.4 1946.8 1160.6 3107.4 1916.0 943.0 2959.0 1283.9 464.3 1748.2 7220.3 5917.8 13157.9 3073.6 2762.2 5835.8Contingencies Physical - - - - - - 97.0 36.9 153.9 95.8 46.9 142.7 64.0 25.1 87.1 254.8 126.9 383.7 97.0 36.9 133.9Contingencias prina - - - - - - 870.6 340.9 1211.3 1170.9 376.1 1547.0 997.4 543.8 1241.2 3039.9 960.8 5999.7 870.6 540.9 1211.5Grand Total Msx4 (MillLane) 946.8 1748.1 2694.9 1126.8 1601.6 2728.4 2914.4 1558.4 4472.8 3187.7 1366.0 4548.7 2545.3 731.2 3076.5 10316.0 7002.3 17521.3 4041.2 3160.0 7201.2Grand Total US$ (Slhllions) 75.7 139.9 215.6 90.1 128.1 218.2 233.2 124.6 357.8 254.6 109.3 363.9 187.6 38.3 246.1 641.2 368.4 1401.6 323.3 252.7 376.1

1' physical contingencies have Sean allowed at 5% on lanai and foreign Costa wherts quatities are nor clearly defined or are subject to alteranton as a resul t of field taste. (Only 1977, 19784 1979)21 p-rice cotlRnc-tee have keen allowd on local coats at 127t. for 1977 end 107 fcc years 1978-3990. Go f-oaigc materIal and equipment ccctingaai..i have keen pxiovded 87 .n yoara 1977-1979 end 7f.to 1980.

Source: N da M and MIssion astiwetas (revised in accordanca with Nexican G-vrrsemt eanotions for 1976)February 1976

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THIRD RAILWAY PROJECT

Diesel Locomootive Reenirmoents 1975-1979

AMU ~~~~~~~~~~- - - - -- _ - - PbOWgD - - - - - - - - - - - - - - - -1974 1975 1976 1977 1978 1979

Freight net ToM Km (including mixed)(billions) 25.5 27.8 29.3 31.3 35.7 37.2

Factor, gross ton ks to net ton 1s 2.0 2.0 2.0 2.0 2.0 2.0

Freight gross ton kos (including oied)(billions) (I x 2) 50.9 55.7 58.7 62.6 71.3 74.4

Freight gross ton km (excluding mixed)(billion.) 49.3 54.1 57.1 61.0 59.7 72.8

Freight trains average speed (K,oho.r) 19.7 19.7 19.7 20.4 21.1 21.8

Gross ton km Par HP at 100% utilis-tionincreased in direct proportion to average speed 88.9 88.9 88.9 92.0 95.2 98.3

Freight-Loco=otive HP required at 1007 utilization (000) (4 t 6) 555.2 608.9 642.8 663.0 732.9 740.1

Freight-Locomotive utilisation co-efficient 0.490 0.504 0.504 0.511 0.518 0.525

Freight-Locomotive HP required in service (000) (7 x 8) 1133.1 1208.1 1275.4 1297.4 1414.9 1409.7

Freight-Locomotive availability ce-efficient 0.82 0.82 0.82 0.83 0.84 0.85

Freight-Locomotive HP required is fleet (000)(9 x 10) 1381.9 1473.3 1555.3 1563.1 1684.4 1658.5

Add for shunting Locomotive HP (including out of service) 306.1 312.4 331.1 334.6) 678.3 678.3

passenger and mixed traine + HP ditto ) 372.2 367.7 363.3 359.0

1 ' retirments (as estimated by N de M) - 169.6 78.2 52.3 53.1 55.4

Total HP required in fleet (11+12+13+14) 2060.2 2321.2 2311.8 2295.5 2432.0 2407.5

Total HP available 2060.2 2114.0 2113.1 2235.7 2244.6 2381.1

Balance HP required - 207.2 198.7 59.8 187.4 26.4

Locomotive snits/propoeed in N de M Investment Plan 1975-79 20x2000 HP 5922000 HP 18.2000 HP 57x2000 HP 9x2000 HP30x2250 RP - -17x3600 HFP 1c3600 HP _x3600 HP Bfl3600 HP 3x3600 HP67 82 . ,, 78 12

Additional HP proposed in N de M Investment Plan (000) 168.7 200.8 61.2 189.6 28.8

Surplua (shortage) HP at end of year (000) (38,5) 2.1 1.4 2.2 2.2

Average locomotive km per freight locomotive in service per day(5x8x24 hours) 231.6 238.3 238.3 250.2 262.3 274.8

Average Locomotive km per freight locomotive in service per year 84,500 87,000 87,000 91,300 95,700 100,300(21x365 days)

Source N de M and MissionMay 1975

MEXICO

THIRD RAILWAY PROJECT

Freight Car Requirements 1977-1979

1977 _78 1979

Freight net ton km per year - from traffic projectionB (billion) 31.3 35.2 36.8

Deduct bulk oil traffic (Cars provided by PlIfX) (billion) 3.9 4.1 4.3

Balance general freight traffic per year (billion) (1-3) 27.4 31.1 32.5

Increase by 8.76% (N de M figure) for longer operating than traffic 29.8 33.8 35.3charging distances (billion)

Average freigpt net ton km per day (million) (4;365 days) 81.6 92.6 96.7

Average car load, loaded cars only (excluding oil traffic) 49.8 51.5 51.5

Percentage loaded to total car km (excluding oil traffic) 62.0 61.1 61.2

Average car km per serviceable car day (excluding oil traffic) 60.5 64.7 65.8

Average ton km per serviceable car day (excluding oil traffic)(6x7x8) 1868 2036 2074

Total serviceable cars required per day (excluding oil traffic) (5#9) .43,683 45,481 16,625

Average number N de M cars in fleet for general traffic 31,933 35,593 37,068

Number N de M cars added in year for general traffic ./ 3.800 1.600 1.600

Total N de M care in fleet for general traffic (11+12) 35.733 37.193 38.688

Deduct - out of service 5% 1,822 1,897 1,922

- N de M cars on others railways 1,860 1,860 1,860

- N de M cars retired in year 140 125 100

- Total (14+15+16) 3,822 3,822 3,932

Average number N de M cars available for general traffic (13+17) 31,911 33,311 34.736

Add - other Mexican railways' care on N de M 1,530 1,530 1,530

- other private owner cars on N de M 3,460 3,V460 3,460

Total number cars available on N de M for general traffic (18+19+20) 36,901 38,301 39,726

Balance of cars to be met from foreign railways' cars (10-21) 6,782 7,180 6,889

Minimum number of foreign cars required for import traffic 6,800 6,912 7,059

Addition above foreign cars (22-23) 2,500 1,590 1,670

Add private owner and local cars of PEMEX (approximate) 7,500 7,500 7,500

- N de M service cars (approximate) 2,500 2,500 2,500

Total freight cars including oil and service, on N de M lines (21+22+25+26) 52,700 54,100 56,600

i/ Freight cars for receipt up to year ending December 1976 have already been ordered by i de M. Freight cars shown in above table for receipt in 1977

will be ordered in 1976, for 1978 in 1977 and for 1979 in 1978.

Source: N de M and NisuionJuly 1975

Ico

TRhIRD RAILWAY PROJECT

N de M Freight Traffic in 1966, 1970, 1974 and Forecast for 1976. 1978 end 1980

-1966 ----- 6 ---- 1970 ------ 19°74 --- - 1976 --- 19 78----- 1980----Ton T-Kr Ton T-Km Ton T-Km Ton T-Km Ton T-Km Ton T-K;

Groups of Products (000) (million) (000) (million) (000) (milion) (0 (million) n= (002 tmi1liga

1. Agricultual and Forestry 7,703 3,524 8,100 3,864 9,870 5,103 9,810 5,164 10,614 5,608 11,485 6,091

2. Mineral 11 1J 1/ 1/ 3,717 7,624 16,473 10,436 21,r648 13,733 24,711 i5,597

3. Hydrocarbons 3,815 1,641 4,735 2,170 6,186 2,732 5,934 2,442 6,436 2,642 6,5?81 62

4. InorganicY 2,314 594 2,365 810 7,862 1,825 8,528 2,162 9.363 2,396 10,I9? 2,638

5. Industrial 3 ] 17,202Y! 7,9201/ 21,6801/ 10,2621' 13,273 7,612 15,795 8,9o4 17,986 10,155 20,610 11,822

6. Other 1,296 868 _1 2 a 8 616 64 1 2 60 561 721

Sabtotal 32,484 14,661 38,324 18,099 51,524 25,405 57,181 29,637 66,727 35,095 74,605 39,605

7. Less than Gar Load (L CL) NA NA NA Ni 176 - 52 175 50 17~ _ -

Total NA NA NA NA 51,700 25,1457 57,356 29,687 66,902 35,145 74,780 39,655

1/ Available information for 1966 and 1970 does not allcm a separation between industrial and mineral products. The figures listed under theheading of Industrial coprise the total of both groups.

Sand, sulfur, limestone, salt, varlous inorganic.

3/ Including sugar and molasses.

NA Not available

Source: N de M

July 1975

8gCO

TOIRD RAIDAY PROJECT

Revenue, femsa and Not Lose - 1974-1979(in H~ Million)_

- - - - - - - - -ACTUAL - - - - - - -- - - - - - - - - - - - - - FCAST - - - - - - - - - -

1972 1973 1974 1975 2976 1977 1978 1979N de Y Costing

study A/OPBEATING REVENUE

Freight - carload and LCL traffic 2,079 2,038 2,511 2,511 3,645 3,994 4,217 4,616 4,843Passenger - fares, baggage and miscellaneous 151 129 151 151 172 188 197 208 215Express (traffic and storage) from costing 100 101 110 110 140 150 161 173 181Mail 35 47 48 48 57 65 67 69 73Local haulage 25 25 30 30 28 33 35 39 42Demarrage 30 46 93 93 100 106 113 126 135Equipment rents 41 40 73 73 75 80 85 90 98Mincellaneous 26 20 27 27 34 35 36 37 38Additional tariff adjustment:

Freight - 425 470 494Peasenger 25 40 40 56

TAX refund by Govermuent on gross receipt 456 504 581 638 670Sub-Total 2,487 2,716 3,043 3,043 4,707 5,180 5,957 506 6,844

Compensation by Government on unprofitable services - - - - - 1400 :3550 320 265Total Operating Revenue 2.487 2.716 3,043 3.043 4,707 5,50 6,07 , 7.109

OPERATING EXPENDITURE

Staff Costs

Wages, salaries, overtime, etc. 1,610 1,840 2,265 2,265 2,796 2,900 3,119 3,315 3,400Bonuses and concessions 221 261 331 331 406 425 436 430 455Pensions 384 437 552 552 650 670 690 718 730Sick pay 44 51 60 60 77 82 87 93 95Medical and hospital 162 179 226 226 275 280 288 296 300

Sub-Total 2,421 2,768 3,434 3,434 4,204 4,357 4,620 4,872 4,980

Fuel, water nd lubricants 187 225 336 336 350 365 383 410 425Material and other changes 713 778 1,005 1,178 1,267 1,451 1,627 1,715 1,735Freight car rents 129 210 217 217 260 270 250 220 180

working costs (cash outgoing.) 3,450 3,981 4,992 5,165 6,081 6.443 6,880 7,217 7,320

Depreciation 228 243 269 502 300 340 360 385 400Less: Reduction of loss on uneconomic passenger train. (60) (90) (120) (160)

Total Operating Expenditures 3,678 4,224 5,261 5,667 6,381 6,723 7,130 7,482 7,560

Net working revenue or (lose) (963) (1,265) (1,949) (2,122) (1,374) (803) (f83) (271) (51)Net operating loss (1,191) (1,508) (2,218) (2,624) 1,674 1,143 643 656 451

Interest charges 182 253 355 355 843 923 958 987 890Net deficits (1,373) (1,761) (2,573) 2,979 2,517 2,o66 1,801 1,643 1,341Working ratio: with Government compensation 139 147 164 170 129 123 112 106 101

without Government compensation - - - - 129 124 114 109 105

Operating ratio: vith Government compensation - - - - 136 128 118 112 105vithout Government cmpeneetion 148 156 173 186 136 130 120 115 110

Time interest earnedDebt service coverageReturn on net fixed assets -

1/ The figures are based on results of traffic costing study conducted by the Bank for 1974 nd depreciation is calculated on revaluated assetsincluding rails, sleepers and ballast.

Source: N de M and Mission Estimates

February 1976

MEXICO

THIRD RAILWAY PROJECT

Summry Bal ce Sheets(in Mexf-51ill]-on)

-Actual ----------- ---------------Estimated---------------

1372 1971 1224 1922 1976 1227 1978 1979Fixed Assets

Gross book value 17,368 18,399 20,037 21,659 23,892 26,586 28,675 30,191Less accumulated depreciation ) (3,133) (3,195) (2,630) 2892 28,600 2.759Total net fixed assets 14,511 15,266 16,842 19,029 21,345 24,071 26,075 27,432

Deferred Assets 85 199 173 288 319 318 276 282

Investment and Deposits 46 208 151 373 381 359 365 366

Current AssetsCash in hand and at banks 68 137 188 400 442 500 500 500Cash in transit 75 42 36 106 90 57 80 80Receivable, net of bad & doubtful debt provisions 211 189 248 282 296 328 349 371Inventories, net of provision for obsolescence 558 504 677 1,392 1,469 1606 1,683 1,757and deterioration

Total current assets 912 872 1,49 2,180 2,297 2,612 2,708

15,554 16545 183152739 29.342

Current Liabilities

Creditors and accrued expenses 516 641 645 1,495 1,492 1,576 1,597 1,593

Deferred liabilities 58 1 1 - - - - -

DebtShort and medium term loans and suppliers credits 1,300 1,679 1,083 - - - - -Long term loans 1.031 1,430 3.690 5,561 6.351 7,575 7,781 7,524Total debt 2,331 3,109 4,773 5,561 6,351 7,575 7,781 7,524

Government EquityCapital subscription and subventions 13,464 13,171 13,325 15,029 16,908 18,787 20,992 23,031Less accumulated deficits (815) (377) (429) (215) (409) (699) 1,042 (1,360Total net equity 12,649 12,794 12,896 14,814 16,499 18,088 19,950 21,671

15,554 16,545 182315 212870 24,342 27,239 29.328 30.788

Debt/Equity ratio 15/85 19/81 27/73 27/73 28/72 30/70 28/72 26/74 LSource: N de M and Mission EstimatesFebruary 1976

mIXrco

THIRD RAILWAY PROJECT

Cash Flow and Financing Plan(in hi Ianion

Actual - Estimated - - - - - - - - - - - - - TOTAL1974 1975 1976 1977 1978 1979 1975-1979

Requirements

Net Operating Deficits 2,218 1,674 ,1ks3 843 6.6 bI5 4,767Lessu Depreciation Provision 269 300 340 360 385 400 1-785Net Caah Deficit (surplus) on operation 1,949 1,374 tO3 4B3 271 51 2,982

Increase in working capital 273 181 120 110 100 100 611Estimated debt repayments:Local: Interest charges 171 401 397 429 439 354 2,020

Redemption 566 485 432 423 698 759 2,797Foreign: Interest charges 13 442 526 529 548 536 2,581

Redemption 350 306 454 418 420 310 1,908

Capital Investment,Local 689 840 1,063 1,823 1,792 1,159 6,677Foreign 949 1,652 1,606 1,280 619 623 5,780

Total 5 130 5 681 5 I95 k.U7

Sources of Funds

Government contribution 2,550 3,189 2t,732 2,392 2,366 2,210 12,909

Decrease in working capital

Borrowings:

Foreign: IBRD - 825-ME 376 246 130 - - - 376IBRD - Proposed Loan - 166 510 310 - 986Other 1/ 949 1,406 1,310 770 399 323 4,208

Local 1.231 840 1.063 1.823 1.792 1.359 6.877

Total 5.130 5.681 LS4oQ 5,495 i,887 3,892

1/ This includes: (i) Project loans (1976, 1977) from international sources excluding the Bank and (ii) future loans for the remainder of theinvestment plan (1975-1979) from the Bank and other international sources.

Source: N de M and Mission EstimatesFebrusry 1976

ANNEX 1Page 1

MEXICO

THIRD RA[LWAY PROJECT

A Review of SOP Works

1. SOP work programs are invariably prepared jointly by N de M, SCT andSOP, and the finalized programs carry the seal of these three organizationsto ensure that all relevant aspects have been taken into account. The worksfall mainly under two categories:

Group 1: Works which are initiated mainly by N de M and arerelated to improvement of the railway workings, e.g.,removal of capacity constraints, realignments,regrading, doubling, etc. These works are given thehighest priority by the railways.

Group 2: New lines or new works whose objective, in additionto satisfying a transportation need, is the develop-ment of economic activity in the framework of thecountry's plans, and the assisting in industriali-zation, urban develoFment and the fullest developmentof the potential resources in whose exploitation therailway plays an important role.

2. Works in group 1, broadly referred to as "Mejoramientos", are con-cerned mainly with realignments and rectifications of existing lines to re-duce the gradients and curvatures. These are justified since the construc-tion of the existing railway was started in the nineteenth century and thetrack was laid out and designed for rolling stock and motive power of the oldtype which has now become obsolete and has been replaced by heavier rollingstock. The reduction of gradients and curvatures and the realignments there-fore permit the use of heavier stock at better speeds and enable the newrolling stock and motive power to be utilized to their full capability. Thesame applies to "mejoramientos" related to capacity constraints, such asbypasses and doubling, which improve capacity.

3. Works in group 2 pertain to new lines justified for additionaltransportation needs; under this category come such works as the Las Truchas-Corondiro line for the steel plant at Las Truchas. All SOP works in group 1as well as group 2 are examined jointly by N de M, SCT and SOP, and, for thenew works, detailed feasibility studies are made in addition to the economicevaluation (minimum rate of return 12%) which is done for all projects.

ANNEX 1Page 2

4. SOP Works in Progress (1971-75)

Section Type of Work

(i) Mexico-Queretaro - Realignment and doubling. This isone of the sections with the highesttraffic, and the work of doubling wasstarted in 1967. Likely to be com-pleted in 1980.

(ii) Corondiro-Las Truchas - For the exploitation of iron oreresources - new line 200 km long toconnect Las Truchas steel plant, beingset up with Bank assistance. Likelyto be completed in 1978.

(iii) Toros-Puerto Madero - New branch line 12 km long to connectwith new port - line almost completed.

(iv) Suchiate Bridge - Joint road/rail bridge connectingN de M with Guatemala Railways to re-place wooden bridge frequently washedaway by floods - work completed.

(v) Lecheria-Joltocan - Bypass lines north of Mexico City toTeotichuacan avoid passage of some goods trains

through Valle de Mexico Yard. Workwill be completed in 1978.

(vi) San Francisco del - Detour for dam works at El Barrial,Rincon Guanajal which will inundate existing lines.

(vii) Risco-Cuautla- - South of Mexico, started in 1962, com-El Pastor pleted in 1974 as first stage for the

south line.

5. SOP Works Planned for 1976-1982 (Mejoramientos)

(i) Irapuato-Manzanillo - Realignment/regrading Sanula-San Nicolas(15 kin) and connection line Tlajomulco-El Castillo (24 kn) - to be undertakenin 1977.

(ii) Mexico-Veracruz - Realignment and regrading of 14 differ-ent sections on the Sureste line - tobe undertaken gradually between 1976 and1982.

(iii) Mexico-Laredo - Realignment and regrading of Pinto Bocas(14 km) and Saltillo-Ramos Arizpe (13 km) -

to be undertaken in 1980.

ANNEX 1Page 3

(iv) Mexico - Ciudad Juarez - 2 sections - 14 km/33 km - realign-ment and regrading.

(v) Truchas-Mexico - Realignment and regrading of six sections- to be undertaken between 1978 and 1982.

(vi) Aguas Calientes-Tampico- - Realignment and regrading projectedCuantla-Cuerranaca for 1980/1981.

6. New Works Planned for 1976-82 (Tentative)

(i) Perote-Teziutlan - Broadening of existing narrow gaugeline to provide a connection betweentwo existing lines (40 km ) on themain line to Veracruz - to bypass hillsection on main line. Proposed for1977-1978.

(ii) Shortcut Mexico- - 220 km Mexico-Magosal or Peroto Teziutlan-Tampico Mascarenas - not yet decided.

(iii) Costera del Golfo - 280 km Guadalupe-Cardel or Tecolutla-Cardel - not yet decided.

(iv) Shortcut Guadalajara- - 160 km El Castillo-San Juan de LagosMonterrey or Atotonilco-San Francisco del Ricon.

(v) Salinas Venado - 100 km to couple with (iv) above.

(vi) Shortcut Mexico- - 110 km Salinas-Victor Rosales.Ciudad Juarez

December 1975

smco

TN1RD MAILAY PlDJWCT

Org.nttttioEI Dtagr - N de 11

GD~ [I~Z ] SImAL LMO6. AMI TRAK IAI

A.I14IMSRATIN AI1CO aoLINCOPUATIORS TAlCP U U

N~~ ~ ~ ~ ~ 6

D.W. MLY 1975: m n E TT I

D-t. lley 197S

ANNEX 3Page 1

MEXICO

THIRD RkILWAY PROJECT

Staff Data - N de M

I. Position of Staff 1975

Post OperatedPosts in Anticipation

Sanctioned of GovernmentDepartment by Government Sanction

Administration Council 3General Manager's Office 170 11Public Relations 17 -Special Services 187 -Way and Structures 16,629 33Rolling stock and Motive Power 17,973 454Transport 13,634 1,285Electricity/Telecommunications 1,352 31Passenger Traffic 61 -Freight Traffic 150 15Train Checks 325 -Car Service 31 2Express 3,034 9Legal 40 1Personnel 163 -Medical 2,674 6Social Services 282 6Accounting 1,282 15Treasury 183 5Budget 111 -Data Processing 132 56Purchases 78 -Stores 801 6Tests and Analysis 207Internal Auditor 100Technical Department 75 8Training Institute 194 50Statistical Office 7Coordination Comission 517 5New York Purchase Office 27 -Central Administration 150 -Equipment Accounts 112 15Complementary 549

61,250 2,013

ANNEX 3Page 2

II. Total No. of Posts 63,263Traffic Units (millions) 29,053Productivity per Post 459,242 units

Source: N de M

December 1975

ANNEX 4Page 1

MEXtCO

THIRD RAILIWAY PROJECT

Property, Maintenance and Operations

A. Track

1. Principal traffic lines are laid mostly with 100 to 115 lb/yd rail,while secondary and branch lines have 75 to 85 lb/yd rail, with a few branchlines having light rail of 50 to 60 lb/yd. Sleepers are almost whollyimpregnated hardwood and softwood timber, although concrete sleepers havebeen used on main line relaying for some years. Standard rails are 39 ft.long with 4-bolt fishplates; relaid track has welded joints, station tostation, mostly of the thermit type., although two electric flash butt weldplants are available, and flash butt welding is being increasingly used forrail welds. Ballast is of reasonable quality on relaid tracks but isgenerally inadequate and of poor quality elsewhere. The lighter rails areinadequate for the heavy axle load locomotives and cars now in general use.Rails have suffered damage from insuifficient support due to the ballastcondition and to the high proportior of timber sleepers (about 20% averagethroughout the system) in poor condition and in need of replacement. Theproblems are compounded on the steep hill sections between the main coastalports and the upland interior; most such lines carry heavy gross tonnagesof traffic on grades up to 3% uncompensated, with continuous curvature, upto 140, without transitions and inadequate tangents between reverse curves;rail wear and damage are heavy on these sections while drainage is poor dueto the accumulation of sand used for adhesion and deposited on the ballastby locomotives climbing the grades.

2. For principal lines, N de M policy is to relay with: (a) 115 lb/ydrail (except on continuous grade and curvature sections where second-hand112 lb/yd rail, work-hardened on tangents, will be used as being more resis-tant to wear than new rail fresh from the rolling mill); (b) flash butt jointwelded rail into 1,053 ft lengths at depots, and then into continuous lengthsby thermit welds in the track; (c) post-tensioned reinforced concrete sleepers(locally manufactured) at 1,660 per }in; (d) elastic clip fastenings insulatedfor future CTC, with bolted connections to the sleepers (all also made locally);and (e) 1,500-1,700 cu m of good quality stone or slag ballast. For lessertraffic lines, released 100-112 lb/yd rail in good condition will be used:(a) after classifying, cropping and welding at the welding depots (the twoplants available have sufficient capacity, about 210 welds per plant per twoshift day, to meet the program for new and recovered rail); (b) with timbersleepers being made good as required (25% average being allowed new out of1,990 sleepers per km); (c) with new larger bearing plates and screwfastenings; and (d) an improved stone ballast section (60% average allowednew). On remaining lines, arrears of timber sleeper replacements need to bemade good and the ballast section improved.

ANNEX 4Page 2

3. N de M manufactures all its own switch and crossing components atthe mechanical workshops at Aguascalientes.

4. The position on rail, at present and proposed at the end of theInvestment Plan period, 1979, is approximately as follows:

1974 1979(km) (km)

Principal lines - 115 lb/yd 1,200 2,850

- 110-112 lb/yd 4,200 3,550

- 100 lb/yd 3,900 3,900

Secondary and branch lines

- less than 90 lb/yd 4,700 3,700

14,000 14,000

5. All relaying work is carried out by N de M's own work forces, aidednow by mechanical equipment provided under the Second Railway Project. Thestandard of finish is generally good, but more preparatory work is needed inrestoring the formation (or platform) and drainage before the relaying opera-tion is carried out. N de M intends to deal with this aspect in the future.Rail required is to American specifications and is all imported (recentlywholly from Canada because N de M had a poor experience with US Steel raildelivered in 1972), Concrete sleepers (about 900,000 required 1976-1977) canbe supplied in adequate quantity from local sources; timber sleepers canprobably also be obtained (about 1,500,000 required 1976-1977) if an adequateprice is paid; imported sleepers are also used at a considerably higher cost;all timber sleepers are impregnated at N de M's own depots; average life is15-20 years, but 20-25 years could probably be obtained with better ballasting,drainage and maintenance. N de M considers that it can obtain and transportadequately the quantities of stone ballast required.

6. Track maintenance is wholly manual and is based on an average ofone man per km with additions for curvature and switches. Usual gang lengthsare 10-20 km, the gangs being equipped with locally manufactured gang andmaterial trollies for transport. Inspectors cover 160-200 km with one ortwo senior inspectors and one or two engineers per division. The manningis on the low side, and the average maintenance standard achieved is adequateonly for modest speeds. N de M intends to provide track machinery (mainlyballast tampers, regulators, compactors and track liners) and to consolidatethe gangs into longer sections (of 50 km) over the relaid and improved tracksin order to obtain better standards of maintenance in the future.

ANNEX 4Page 3

B. Locomotives, Cars and Workshops

7. N de M has 1,014 diesel locomotives, of which about 198 are of lowhorsepower up to 1,350 hp, 427 between 1,500 to 1,800 hp and 389 between2,400 and 3,600 hp. Diesel locomotives are repaired at the San Luis Potosiworkshops with some of the special work decentralized to the Guadalajaraworkshops. Repair schedules generally follow the makers' recommendations,but schedules of replacements and maintenance have been adapted to localconditions.

8. There are 26,262 freight cars in the system comprising 17,020 boxcars, 5,058 gondolas, 527 cattle vans, 609 platforms, 954 hoppers, 1,517 tank-cars and 577 caboose vans. The railway had no system of scheduling freightcars for regular periodic overhauls, but a scheme has been implemented in theAguascalientes workshops for the reconditioning of box cars. A modern beltsystem has been installed with the assistance of the consultants (TOPS-On-Line),and 10 box cars are being reconditioned per day. This is also part of a schemefor rationalization of workshop capacity, with certain workshops specializingin certain types of rolling stock. 'In pursuit of this scheme, it is alsoproposed to centralize tank car repairs at Apizaco (2.5 tanks per day), gon-dola repairs at Matias Romero (4 gondolas per day), and hopper cars at CiudadFrontera (2 hoppers per day). Eventually, after an adequate number of freightcars have been reconditioned, it was suggested by the mission to N de M thatthe preventive maintenance of cars oni a program basis be started, wherebyfreight cars would be called into shops at regular intervals for periodicaverhauls.

9. As far as passenger coaches are concerned, N de M has 1,389 coaches,of which a large number (943) are 20 years or more of age. New passengercoaches are not yet manufactured in Mexico and 200 new coaches are to be im-ported from Canada. Repair and maintenance facilities for passenger coachesexist, however, in the railway workshops.

C. Operations

10. Train control is almost wholly by line orders from dispatchers ope-rating through station-to-station line wires. Only passenger trains are runaccording to detailed timetables; freight trains at present have only approx-imate starting and terminal timings, but several unit/through trains are nowprogrammed to be run to timetables. No signals are provided, and many way-side crossing loops are unmanned, with switches being operated and crossingsbeing made by the train crews in accordance with the line orders. Centralizedtraffic control (CTC) with color light signalling has been installed on foursections of the line; two between Mexico City and Monterey, one between MexicoCity and Teholtihuacan, and one from Valle de Mexico main yard to the Buena-vista passenger station in Mexico City. Three additional sections are proposedin the 1975-1979 Investment Plan: one to complete Mexico City-Monterey, onefor the heavily used Veracruz-Mexico City hill section and the third forAragon-Ahocado, the northern approach to Mexico City, where SOP is alreadycarrying out a realignment with double track. Average net train loads havebeen increasing slowly from 930 tons :Ln 1970 to 1,160 tons in 1974. Morepowerful locomotives are being introduced, crossing loops and yards are being

ANNEX 4Page 4

lengthened and the operation of unit and through trains is being started forthe transport of iron ore, pellets, limestone, coke, crude oil and othercommodities.

11. N de M has a separate safety and accident control department,responsible to the General Manager. The departmental head is President ofa Safety Committee, under which there are 19 divisional committees whichexamine all accidents on the line. Accident enquiries begin on site, withthe final analysis being done at the head office. A final report is madeand sent to the General Manager. The Government also has, at SCT, an inspec-torate of accidents with zonal inspectors who participate in the N de Menquiry and make a report to SCT based on the N de M report. The emphasisof the new management has been on decreasing accidents. Detailed statisticsare kept on all accidents, but no division is made between those in yard, onmain lines and on branch lines, so that it is not easy to make a judgmenton the record. However, serious accidents are rare, and, while there wereabout 300 collisions and 1,370 derailments in 1974, about 20% only, or lessthan one per day, occurred outside yards and stations. Broken rails are alsorare, and the few that do occur are on branch lines with old light rails.

12. Train operations are controlled by the Operating Department, butcars are allotted and controlled by the Traffic Department. This is theAmerican system, which has been acquired historically by the Mexican railwaysdue to their closeness to the US railroads and due to the several points atwhich the two systems interact with each other. There is a central car infor-mation service with computer processing of reports and accounting for anddistributing cars, but the system so far is inadequate, with no records keptof times spent by cars in terminals, sidings, etc. The average car turn-around time is high, but measures are in hand to improve it. Unit andthrough trains are being introduced for bulk and mineral traffic.

13. The PICL System (Permanent Inventory of Car Location) is being intro-duced, with the assistance of TOPS-On-Line, at the main Valle de Mexico ter-minal of Mexico City and should be completed to cover the marshalling, trans-fer and dispatch yards and connected industrial sidings in about six monthstime. When complete, it should be feasible to keep track of all cars in andout of yards and sidings and to produce statements of cars delayed 24, 36,48 hours, etc. Thereafter, N de M will introduce the system into the othermain freight centers in accordance with a detailed time schedule. With theassistance of TOPS-On-Line and Missouri Pacific, a modern car control systemis being introduced, comprising the "Advance Consist" system for trains andthe "YATS" car control system for the yards.

14. There are two other notable features of car utilization on N de M:

(a) Tank Cars: All tank cars for bulk oil, asphalt and relatedproducts belong to or are leased (from US leasing companies)by the state oil enterprise PEMEX. N de M therefore does notcontrol their loading/unloading or detention in oil terminals.Because of long detentions at terminal points, the averageturnaround time is very high (and this affects the overallaverage figure on N de M to some extent).

ANNEX 4Page 5

(b) Sugar Traffic: There is a large seasonal, short haul sugarcane traffic during December to June in the southeast of thecountry, to which some 1,500-2,000 gondola cars are allocated.Here again, the utilization and turnaround is poor, and N deM could very well cater for this traffic by using old life-expired cars, suitably modified for bulk sugar-cane transport,with the gondolas being employed for more profitable generalcargo. N de M has noted this proposal for future action.

February 1976

ANNEX 5

MEXICO

THIRD RAILWAY PROJECT

Track Renewal Program - 1975-1979

Item Line Section New Rail Used Rail(km.) (kmi)

1. B Morales - Nuevo Laredo 206 -

2. M. Cd. Madero - Hipolito 665 -

3. A. Irapuata - Felipe Pescador 327 -

4. L. Empalme distrito - Corcovada 43 -

5. I. Patti - Yurecuaro 20 -

6. A. Tlaltepaxco - Aragon 51 -

7. B. Calera - Aragon 45 -

8. H. Lecheria - Jaltocan 19 -

9. V. San Lorenzo - Oriental 116 -

10. V. Los Berros - Vera Cruz 94 -II. P. Jimenez - Rosario - 4112. RC. Barroteron - Muzquiz - 1213. Encantada - Carneros - 1514. Durango - Felipe Pescador - 17015. L. Chicolote - San Luis Potosi - 10816. LA. San Bartolo - Rio Verde - 4017. IN. Penjamo - Ajuno - 13418. C. Emilio Zapata - Mextitlan - 6219. E. Puebla - Tomellin - 16020. VB. San Lorenzo - Los Arcos - 5021. ZA. Hibueras - Minatillan - 1122. K. Ixtapec - Tapachula _ 14923. GB. Tres Valles - San Cristobal - 48

TOTAL - for 5 years 1,586 1,000

Average per year 317 200

February 1976

ANNEX 6Page 1

MEXICO

THIRD RAILWAY PROJECT

N de M's Plan of Action

1. N de M shall (a) prepare and (b) introduce a corporate plandesigned to achieve the targets set. forth below:

1976 1977 1978 1979

(a) Operating ratio /1 130 120 115 110

(b) Locomotive-km perfreight locomotivein service 87,000 91,000 95,000 100,000

(c) Locomotives out oforder percentage 15.3% 15% 14.5% 14%

(d) TonAkm/freightcar/day 1,700 1,800 2,000 2,050

(e) Average turnaround timeof freight cars 15.5 15.0 14.5 13.7

(f) Freight cars out oforder percentage 5.0 4.8 4.7 4.5

(g) Number of foreign carson line 9,000 7,500 7,300 7,100

/1 Operating ratio shall mean the ratio which total operatingexpenses (including rental of equipment and excluding interest)shall bear to total operating revenues, excluding any compen-sation paid by the Govermnent to N de M.

2. In order to achieve the targets set forth in paragraph 1 preceding,N de M shall:

(a) Take all necessary action to reduce operating costs to achievethe desired operating efficiency.

ANNEX 6Page 2

(b) Furnish to the Bank, not later than June 30, 1977, a man-power plan which will include, inter alia: (i) the depart-mental distribution of manpower year by year up to 1980in accordance with the improvements in the operations of Nde M as set forth in N de M's Investment Plan and thePlan of Action; (ii) a scheme for the solution of theproblem arising from over-aged personnel and for the long-range reduction of the financial burden of pensions; and(iii) a scheme for the improvement of recruitment andtraining standards for the staff of N de M.

(c) Perform, periodically, a cost analysis of low density branchlines and recommend that the Government either permit aban-donment or pay compensation in order to eliminate deficits.

(d) Carry out, no later than December 31, 1976, a study on theeconomic implications of less-than-carload traffic;furnish to the Bank such study and give the Bank a reason-able opportunity to comment thereon; and, if thestudy finds less-than-carload traffic uneconomical, pro-gressively eliminate losses on account of such traffic.

3. N de M shall continue to submit to the Government claims for thelosses on mail service.

4. N de M shall take all necessary action to obtain such revenues aswill, added to the taxes on gross revenues and on revenues from freight andpassenger services, permit it to cover, no later than 1983, all operating costsand interest on debt, and, by no later than 1986, all operating costs anddebt service; to this end, the financial projections and related actions ofN de M will be reviewed and adjusted periodically with the Bank accordingto the progress made in the 1975-1979 period.

February 1976

MEXICO

TEIRD RAILWAY PROJECT

Action Program of Second Railway Prolect

Evaluation of ?rogress Realized

1. STATISTICAL TARGETS 1972 1973 [974 1975 Remarks

(a) Number of Staff - Target 59,000 59,000 59,000 59,000Actuil 59,000 60,000 61,000 63,263 See pras. 3.06 and 3.07 Appraisal Report

(b) New operating ratio Target 1.43 1.43 L.27 1.30Actual 1.56 L.73 1.36 See para. 6.12 Appraisal Report

(c) Net ton-ks per Target 20,000 20,000 20,000 20,000freight train hour Actual 21,437 23,607 24,272 25,127 Distinct improvement

(d) Locomotive ks per ) Target 90,000 92,000 95,000 97,500annum per ML loon ) Actual 90,950 91,639 97,691 n.a. Distinct improvementin use

(e) Locosotive out of Target 15 15 15 15order percentage Actual 17 16 I.5. 15 Distinct improvement

(f) Ton km/serviceable Target 1,450 1,560 1,650 1,700car day Actual 1,473 1,510 1,550 1,600

(g) Freight cars out or Target 9 8 7 6 Distinct improvementorder percentage Actual 6.0 5.5 g5.0 5.O

2. COSTING SYSTEM POSITION

Establish a costing system to determine: ) - N de M met the target of establishing the required(a) Avoidable cost of passenger train operation, and) costing system by Nay 31, 1974.(b) long-run variable cost of freight transport

by commodity. )

3. N de H should recommend to Goverinent:(a) By July 31, 1972, Government payment for carriage QC nadil - This is being complied with by the Government.

By December 31, 1972(b) Program for curtailment/abandonment/iocrease of - Out of aonie 54 trains N de M discontinued 14 trains in late 1974

farea for passenger trains and has received approval from the Government to discontinue ormodify an additional 10 services during 1976. N de M will furtherreview each year this matter in order to rationalize services and/or increase fares with the objective of reducing progressively thepassenger trains losses.

(c) Adjustment of fares from time to time. - N de N raised fares by about 22% effective February 1975 and hasalso requested another raise of about 257. which is under Governmentconsideration.

4. Government shall from time to time, beginning not later thanJuly 31, 1972, recommend to Government:(a) Adjustment of freight rates to cover at least long-run - N de M requested and got approval from the Government to

variable costs. raise freight and empress rates by 447, and 40% respectivelyeffective January 1975. Though action was taken late,freight revenues nw cover long-run variable cost.

(b) A program for identification of subsidies in N de Maccounts should Government not authorize the aboveadjustment in freight rates ) See item 3(b).The Government agreed to pay to N de M specific

(c) Identify the amount to be paid by Government as compen- compensation to offset the losses of the remaining uneconomic passengernation if curtailment or abandonment of passenger trains. The amount of compensation will be identified by each service by N de N.trains not carried not as at 3(h).

5. To eliminate deficits on low density branch lines, N de M s ,all:(a) Carry out by December 31, 1973, a cost study of Branch - The date was extended to August 31, 1975. So far N de M has

lines with low density traffic. abandc.ned seven uneconomic lines, curtailed services onanother seven lines. Decision for abandonment is pending onsir lines. Seven mere lines will be studied in 1976 and twoin 1977.

(b) Taking into account above, take all action to reduce ) - Action is being taken as indicated against 5(a) aboveoperating costs. ) although with some delay.

(c) Recosuend to Government compensation if action at babove not taken.

6. N de M should achieve by 1981 a financial position permitting - This covenant will not be met. N de M agreed to take all necessaryit to pay all operating espouses service all its debts, and action to obtain adequate revenues to cover, (i) by 1983, allake a contribution of t least 40% to its invetments operating costs and interest charges on debts and (ii) by 1986, allthereafter.., operating costs and debt services charges.

eb'uar,i 1976

ANNEX 8Page 1

MEECO

THIRD RAILWAY PROJECT

Project Implementation Schedule

I. Bank Financed Procurement Schedule

Tender TenderDocuments Opening Contract Delivery

(a) Rails (75,000 tons) Mar '76 May '76 Aug '76 9,375 tonsevery quarterfrom Jan-Mar'77 to Oct-Dec '78.

(b) Track Machinery Mar '76 May '76 Aug '76 75% in Jan-Jun 177balance inJan to Mar'78

(c) VHF Telecommmunications Contract signed in Oct '75. Deliveries toEquipment commence in Dec '75 and to be progressively

completed in 24 months.

(d) UHF Telecommunications Contract signed in Dec '75. Deliveries toEquipment commence in Mar '76 and to be progressively

completed in 24 months.

(e) Importe4 Componentsfor freight cars

1,600 box cars Mar '76 May '76 Aug '76 400 wagon setsin each quarterof 1977

600 box cars Dec '76 Feb '77 Jun '77 150 wagon setsin each quarterof 1978

1,450 gondolas Mar '76 May '76 Aug '76 350 wagon setsin each quarterof 1977

950 gondolas Dec '76 Feb '77 Jun '77 225 wagon setsin each quarterof 1978

700 metal gondolas Mar '76 May '76 Aug '76 170 wagon setsin each quarterof 1977

ANNEX 8Page 2

Tender TenderDocuments Opening Contract Delivery

(f) 7,500 axles and Mar '76 May '77 Aug '76 1,500 axles15,000 roller and 3,000baarings roller

bearings ineach quarterJan to Sep'77 and Janto June '78.

(g) Machinery for Mar '76 May '77 Aug '76 50% in 1977workshops and 50% in

1978.

II. Work Implementation Schedule (Major items)

Item Proiect InvestmentPlan

A. Track and Structure

(i) New rail works (115 lb rail) 660 km 1,586 kmMorales-Nuevo Laredo 92 km 206 kmCd Madero-Hipolito 106 km 665 kmIrapueta-F.Pescador 287 km 327 kmE.Distrito-Corcovada 43 km 43 kmPatti-Yurecuaro - 20 kmTlaltepaxco-Aragon 51 kmCalera-Aragon 45 kmLecheria-Jaltocan - 19 kmSan Lorenzo-Oriental 89 km 116 kmLos Berros-Veracruz 43 km 94 km

(ii) Recovered Rail Works(Second-hand rail) 400 km 1,000 km

Jimenez-Rosario 7 km 41 kmBorroteran-Musquis 12 km 12 kmEncantada-Carreros 15 kmDurango-F.Pescador 160 km 170 kmChicolote-SL Potosi 40 km 108 kmSan Bartolo-Rio Verde 40 km 40 kmPenjamo-Ajuno 60 km 134 kmEmiliano Zapata-Mextitlan - 62 kmPuebla-Tome Uin 70 km 160 kmS.Lorenzo-Los Arcos - 50 kmHibueras-Minatitlan 11 km 11 kmIxtepec-Tapachula - 149 kmTres Valles-S.Cristobal - 48 km

ANNEX 8Page 3

Item Proiect InvestmentPlan

A. Track and Structure

(iii) Deferred MaintenanceSleepers 1,200,000 3,000,000Ballast 700,000 1,400,000

cu meters cu meters

(iv) Strengthening of Bridges 265 557

(v) Track Machinery 53% 100%

(vi) Miscellaneous Work 72% 100%

B. Construction Works

Earthworks, drainage, stations,buildings, depots, offices,housing 30% 100%

C. signals, Telecommunications andElectrical Works

(i) VHF Complete works(ii) UHF Complete works

(iii) CTC installation Teotihuacan-Veracruz SL Potosi-(409 km) Carueros

(761 km)(iv) Electrical and telecommunication

works at station, storesyards, etc. 52% 100%

(v) Advance consist and yards 80% 20%

D. Rolling Stock Motive Power, etc.

(i) Purchase of Freight CarsBox 2,272 6,905Gondolas general 2,587 5,903Gondolas mineral 700 1,300Flat cars 210 469Piggy back flatcars 50 150Tanks - 300

ANNEX 8Page 4

Item Project InvestmentPlan

D. Rolling Stock Motive Power etc.

(ii) Imported components for 5,300cars to be delivered in 1977a78 100%

(iii) Purchase of 7,500 axles and159Q0 roller bearings 100%

(iv) Rolling stock for trackmaintenanceTippler gondolas 35 160Ballast gondolas 76 76

(v) Provision of locomotives2000 hp 112 2402250 hp _ 303000 hp 12 123600 hp - 17

124 9

(vi) Provision of Passenger 2oaches 176 200Mail vans 30 30Caboose vans 100 274

(vii) Provision of various items of 42% 100%workshop machinery andequipment

E. Technical Assistance

Foreign (car control, telecommunication,etc.) 59% 100%Local (Civil works) 40% 100%

Source: N de M and Mission EstimatesFebruary 1976

ANNEX 9

MEXICO

THIRD RAILWAY PROJECT

Track Maintenance Machinery - 1976-1977

Item Units

Imported

Bulldozer 7Dragline excavator 4Front loader/excavator 2Grader 2Air compressor 4Rail mounted piledriver 3Pneumatic tired crane 2Ballast multi-tamper 15Ballast regulator 12Track liner 10Ballast compactor 4Ballast hand tamper unit 20Side drain grader 2Sleeper drilling and incisingmachine 14

Rail cutter (small) 40Rail grinder 4Electric welding units 4Motor operated pump 4Tractor/scraper 1

Local

Motor trollies 10

February 1976

ANNEX 10

MEXIC0

THIRD RAILWAY PROJECT

Proposed Telecommunications Network - N de M

N de M's telecommunications project consists of the following parts:

1. UHF Radio Transmission System

18 systems of 60-channel and 664 systems of 24-channel radioequipment for 325 stations equipped with multiplexing equip-ment for 1,323 telephone and 549 telegraph channels; 278 one-channel systems for 139 stations.

2. VHF Radio System

1,506 locomotive and maintenance track radio stations522 radio sets for cabooses500 hand-held radio sets for yard operations211 base stations for dispatch and yard operation with 23

repeaters138 base stations for PBX operation

3. Switching System

16 transit telephone exchanges with a total of 1,036 trunkcircuits

36 local telephone exchanges with a total capacity of 2,320exchange lines equipped for 1,650) subscribersautomatic telegraph exchange with a final capacity of 480subscriber, equipped for 300 subscribers and acquisitions

of 150 teleprinters42 dispatching consoles for 35 selective calling telephone

systems for about 550 staticins43 4-channel magnetic tape recorders for the dispatchers

4. Services

Propagation measurements, installation of the network,maintenance for 6 months, training and consultants' services.

5. N de M's Part (Local Expenditure)

Buildings, towers, power supplier, roads, supervision.Custom duties, inland transport and insurance.

6. The number of systems, stations, radios, teleprinters and otherequipment indicated above are approximate and are subject to adjust-ment after field survey and pilot project, within the overall costfigures foreseen in the project.

August 1975

ANNEX 11

MEXICO

THIRD RAILWAY PROJECT

Workshop Machinery

Item Description Units

1 Centrifugal Fuel Systems 152 Soft Water De-Mineralizing Plants 43 Loading and Lifting Trucks 114 Shear Press 15 Pipe Bending Machines 66 Punching Machines 57 Solid Jet Painting Systems 68 Welding Machines 259 Air Compressors 610 Traveling Cranes 411 Parallel Lathes 1

February 1976

ANNEX 12

MEXICO

THIRD RAILWAY PROJECT

Consultants' Services

I. Missouri Pacific Railway (MOPAC, USA)(For YATS car control system)

(a) 275 consultant days for administration ofYATS project

(b) 270 consultant days for field installationof system US$210,250.00

(c) 245 consultant days for programming

(d) Travel and stay in Mexico

Total

II. TOPS-On-Line Service Inc. (USA)(For Advance Consist System, Car Vigilanceand Telecommunications)

(a) Supervision of project(b) Application programs(c) System programs(d) Telecommunications us$425,646.00(e) Computer control(f) Field installation(g) Travel and stay expenses(h) Rental for computers and other equipment(i) Secretarial services

Total US$635,896.oo

December 1975

ANNEX 13

MEXICO

THIRD RAILWAY PROJECT

Estimated Loan Disbursement Schedule

US$ (Million)

Quarter Cumulative

I. Fiscal Year 1975-1976

To March 31, 1976 - -

To June 30, 1976 4.1 4.1

II. Fiscal Year 1976-1977

To September 30, 1976 4.6 8.7To December 31, 1976 4.7 13.4To March 31, 1977 14.2 27.6To June 30, 1977 14.2 41.8

III. Fiscal Year 1977-1978

To September 30, 1977 12.5 54.3To December 31, 1977 10.7 65.0To March 31, 1978 10.6 75.0To June 30, 1978 9.0 84.6

IV. Fiscal Year 1978-1979

To September 30, 1978 7.7 92.3To December 31, 1978 7.7 100.0

Source: N de M and Mission Estimates

February 1976

ANNEX 14Page 1

MEXICO

THIRD RAILWAY PROJECT

Economic Jusitification

A. General Methodology

1. For evaluation purposes, the Investment Plan was split into sevenelements and each was dealt with separately. Each Plan element caters for acertain distinguishable share of cosl:s and benefits. Six elements wereevaluated using regular cost benefit analysis method. The seventh element,totaling 10.6% of the Investment Plan and comprising miscellaneous investments,was not evaluated.

B. Track Renewal

2. In the case of track renewal, the Plan contemplates the purchase andinstallation of new rail of 115 lb/ya on some 1,600 km of main line. Inaddition, 1,000 km of second-hand rail. set free because of the installationof new rail, will replace wornout rail. In both cases, the improvementsinclude the replacement of rails, ties and switches, after ballastingand reshaping of the embankments. Total costs, excluding price contingencies,were allocated as follows:

(1975 - Mex$ Million)1975 1976 1977 1978 1979

Track Renewal - New Rail 299.0 303.3 237.3 248.7 280.0

Track Renewal - Used Rail 68.0 31.0 25.4 26.4 24.2

Total 367.0 334.3 262.7 275.1 304.2

3. Since the proposed investment will substantially improve the numberof deteriorated rail lines, maintenance costs with the improvements will beless than without the improvements for the same levels of traffic. Moreover,along these lines there are already several zones with speed restrictions,some of them very severe, due to the poor state of the track. If the trackis not rehabilitated, more speed restrictions will appear, and overall travelspeed on these lines will continue to decrease. Accordingly, benefits, con-sisting of savings in track maintenance costs and of better equipment utili-zation by avoiding abnormally low speeds, were estimated for each one of thenine lines being improved, and discounted against the associated capitalcosts. Individual rates of return were calculated for each one of the ninelines and for the entire group.

ANNEX 14Page 2

4. Table 1 of this Annex shows the estimated per km track maintenancecosts for each and the benefits derived.

5. Table 2 of this Annex presents the method used to calculate operatingbenefits originated from avoiding lower speed limits. The basic underlyingassumption is that a higher train turnaround will enable a better usage of therunning equipment. The amortization cost per hour of an average train iscalculated on a per gross ton basis. The increase in speed limit reduces thetime required to cover a certain distance, and, as a consequence, the totalamortization cost for such a distance decreases correspondingly. Working costsare conservatively assumed not to change. A table was calculated for differentspeed ranges.

6. Other assumptions were also made:

(a) Traffic is the same for the with and without cases;

(b) for calculating rates of return of individual lines, main-tenance savings are constant over the Plan period;

(c) for the overall rate of return, only one year (1980)maintenance savings were considered;

(d) for the calculation of benefits derived from the speedlimit increase, the project traffic forecast was used.

7. Based on the above estimates of capital requirements and benefitsobtained, this Plan element is expected to have an overall rate of return of14%, with individual rates of return fluctuating from 12% to 23%, which isacceptable.

C. Track Rehabilitation

8. This Plan element includes the improved maintenance of 14,300 km oftrack and the purchase of related equipment. Ballasting and replacement ofties and switches are included. The total required investment was allocatedas follows:

(1975 - Mex$ Million)1975 1976 1977 1978 1979

Sleepers, ballast, ties and switches 89.4 108.9 120.5 117.5 117.5

Equipment 23.1 33.1 77.4 46.3 27.9

Total 112.5 142.0 197.9 163.8 145.4

Regular maintenance costs are not included as part of the Plan.

ANNEX 14Page 3

9. Project benefits consist, principally, of savings derived from anincrease in the useful life of sleepers and rail and from a reduction in trackmaintenance costs derived from the use of more efficient and modern equipment.A portion of the new equipment will replace obsolete equipment; the restwill improve on present maintenance practices. The existing labor intensivemaintenance will continue in the system with the exception of the heavilytrafficked trunk lines, where existing labor will be supplemented by efficientequipment which will allow proper track maintenance without unduly interruptingtrain schedules and services. Table 3 of this Annex shows the benefitscalculation. Benefits from the increased useful life of sleepers and railsare calculated as avoided replacement costs per year. Savings derived fromnew maintenance equipment are determined by comparing the maintenance coststhat would accrue with the project with those which would occur without theproject. A shadow price of 50% has been used for the unskilled labor employedin maintenance.

10. Based on the above estimates of capital and maintenance costs andbenefits, this Plan element is expected to have an economic return of 21%.

D. Realignments and Bridges

11. This element of the Plan provides for the realignment of severalminor sections of main lines and the construction of a number of bridges,culverts and retaining walls. The purpose of realignments is to decreasetrain operating costs by reducing the present steep grades in predeterminedsections. New bridges and accessory works will increase the capacity of themain lines to carry heavier cars and locomotives, also reducing operatingcosts. For this Plan element, the total required investment was allocatedas follows:

(1975 - Mex$ Million)1975 1976 1977 1978 1979

Realignments 2.2 17.0 37.0 26.6 -

Bridges and others 26.8 44.0 41.0 44.5 44.4

Total 29.0 61.0 78.0 71.1 44.4

12. The realignment benefits consist principally of savings derived froma decrease in the cost of moving existing cargo over a given distance, as aresult of a reduced grade. Bridges and other civil works create benefits inworking cost reduction when using heavier equipment. Realignment benefits werecalculated for each one of the three lines where realignments are planned, andfor the three combined. The methodology is shown in Table 4.

13. Table 4 of this Annex also presents the methodology used for cal-culating benefits derived from the use of heavier cars and locomotives. Itis assumed that, starting in 1984, and for the considered project life, 60% ofthe traffic will be moved by heavy cars and locomotives.

ANNEX 14Page 4

14. Based on the above assumptions and estimates, this project elementhas a global rate of return of 14%, with economic returns varying from 12%to 26% for the various realignment projects. The economic rate of returnfor the bridges and others is 13%.

E. Locomotives and Rolling Stock

15. The 1975-1979 Investment Plan includes, as its most important item(approximately 60% of total Plan), the acquisition of rolling stock and motivepower. Total costs, excluding price contingencies, were allocated as follows:

(1975 - Mex$ Million)1975 1976 1977 1978 1979

Traction equipment 335.3 451.2 150.5 456.3 68.0

Rolling Stock 1,531.0 770.3 1,374.3 1,187.1 534.4

Total 1,866.3 1,221.5 1,524.8 1,643.4 602.4

16. Project benefits consist principally of savings derived from railtransportation as compared with road transport. Without the proposed invest-ment, it is assumed that part of the forecast traffic will be diverted totrucks due to lack of capacity in the railroads. It is considered, from anSOP study, that truck operating costs under normal conditions are Mex$ .39/ton-km as compared with rail transport estimated at Mex$ .11/ton-km. To calculatebenefits, savings of Mex$ .28/ton-km are applied to the traffic figures thatwould have to be diverted to road transportation without the investment.Traffic and capacity figures used are derived from Tables 1 and 7 of the mainreport, and the calculation of benefits is described in Table 5 of this Annex.

17. The savings in transport costs from this Plan element yield aneconomic rate of return of 16%.

F. Shop Equipment

18. In the case of shop equipment, the Plan contemplates continuing theongoing program of rationalization, modernization and expansion of shop instal-lations. The purpose of the investment in this Plan element is to increasethe efficiency of the maintenance and repair works. Costs were allocated asfollows:

(1975 - Mex$ Million)1975 1976 1977 1978 1979

Shop equipment 20.3 7.0 48.7 42.5 14.4

Shop improvements 33.1 52.4 147.6 111.4 85.2

Total 53.4 59.4 196.3 153.9 99.6

ANNEX 14Page 5

19. The benefits of this Plan element consist principally of avoiding adecrease in the availability of motive power and rolling stock. In 1974, onthe average, 20% of the motive power and 7% of the rolling stock were out ofservice. Those percentages of down equipment would increase if the recon-struction and rationalization program of N de M's shops is not carried out andnew equipment does not replace the wornout equipment being used today.

20. Benefits were calculated on the conservative assumption that, withoutthis Plan element, there would be a clecrease in the availability of rollingstock and motive power of 3% and 2%, respectively, starting in 1977. Usingthe running equipment needs forecast (see Tables 5 and 6) and using theimproved availability percentages, a determination was made of the number ofadditional locomotives and cars that would have to be purchased each year tosubstitute for the equipment out of service. For quantifying the benefits, itwas assumed that the average locomotive costs were Mex$ 5 million and the aver-age car Mex$ .3 million. From 1980 on, it was further assumed that savingsremain constant.

21. Based on the above, this project element is expected to have arate of return of 22%.

G. Telecommunications and Signalling

22. This Plan element was divided into three different components forits economic evaluation.

(i) VIF and UHF communications network;

(ii) CTC signalling; and

(iii) Car control system.

(i) VHF and UHF Communications Network

23. This package includes the provision of VHF and UHF equipment to in-crease train turnover by decreasing terminal delays and improving yard opera-tions and train speeds. Total costs of Mex$ 391.3 million were allocated asfollows:

(1975 - Mex$ Million)1975 1976 1977

VHF/UHF System 62.3 304.0 25.3

24. The benefits consist principally of improved car utilization. Asecond area of potential benefit, improved locomotive utilization, was notquantAifiod becauge of the difficulty of prodicinp rallisEtic estimate . Thlebenefits were calculated for 1978 as explained in Table 6 to this Annex andthereafter estimated as a direct function of the forecast traffic growth. Theeconomic results were combined with those of car control (para. (iii) below),and a resulting rate of return of 25% was obtained.

ANNEX 14Page 6

(ii) CTC Signalling

25. CTC signalling includes the acquisition and irnstallation of a cen-tralized traffic control system on four high density lines; costs are asfollows:

(1975 - Mex$ Million)1976 1977 1978 1979

CTC 10.9 83.0 61.0 1.1

26. CTC benefits are, principally, savings derived from avoiding delaysalong the way, mainly delays in sidings at stations. Only train amortizationcosts per hour were taken into account. Benefits were calculated independentlyfor each line for a base year and projected as a function of expected trafficgrowth, until the capacity of the lines (32 trains/day) is saturated. Fromthat year on, the benefits are kept constant.

27. The rate of return obtained was 35% for the four cases combined.

(iii) Car Control System

28. This package includes the implementation of two operating controlsystems: (i) an Advance Consist and Car Monitoring and associated PICL(Permanent Inventory of Car Location) Systems; and (ii) a YATS Yard ControlSystem at the Valle de Mexico Terminal. The allocated costs are:

(1975 - Mex$ Million)1976 1977 1978 1979

Car control systems 25.5 13.0 8.0 10.8

29. Benefits consisting primarily of increased car utilization wereestimated for one year (1979) and projected as a function of the trafficforecast (Table 6), in conjunction with those for case (i) above. Theestimated rate of return was 25%.

H. Overall Economic Evaluation

30. Based on the benefits calculated for the six Plan elements discussedabove, the rate of return for 89% of the five-year Investment Plan (Mex$ 11.6billion) is 16%, which is satisfactory (Table 7 of this Annex).

31. A sensitivity analysis was performed for each benefit-generatingPlan element and for the overall Plan. Cost overruns of 15% will not reducethe rate of return of any of the elements considered below 10%. For theoverall Investment Plan, an increase of 15% in costs will reduce its rateof return to 11%, which is acceptable (Table 7).

February 1976

ANNEX 14Table 1

MEXICO

THIRD RAIIMAY PROJECT

Economic Evaluation of Track Renewal

Calculation of Mantenance Savings per Year(1975, Mex$ 000)

Restored TrackPresent Maintenance New Track Maintlyance maintenance 29osts

Cost per Km Cost per Km_- per W2Mountainous Mountainous Mountainous

Flat Terrain Terrain Flat Terrain Terrain Flat Terrain Terrain

Sleepers 12.5 16.7 10.0 12.5

Tracks 22.3 29.7 - - (14.8>Ž/ (17.8A1

Ballast 3.6 4.8 3.6 4.8 3.6 4.8

Miscellaneous 4.5 4.5 4.1 4.1 2.8 2.9

Total Materials 42.9 55.7 7.7 8.9 16.4 20.2

(31.2A/ (38.0)1

Labor 40.8 40.8 40.8 40.8 27.3 27.2

Total 83.7 (a) 96.5 (b) 48.5 (c) 49.7 td) 43.7 (e) 47.4 (f)

(5.5/'(g) (65.2))9/(h)

Maintenance Savings per Year

New Track; [(a)-(c)] x 1187 + [(b)-(cL)] x 399 - Max 60,455,600Restored Track; Years one to twelve: [(a)-(e)J x 912 + L(b)-(fr) x 486 - Mex$ 60,342,600

Yeerstwelve to twenty: [(a)-(g)] x 912 + [(b)-(h)] x 486 = MeX* 38,194,200

1/ Of the 1583 km where track is to be renewed, 1187 km are on flat to rollingterrain and the remaining 399 km on mountainous terrain.

2/ Of the 1398 km where second-hand rail is to be placed, 912 km, are on flat terrainand 486 km on mountainous terrain.

3/ It is assumed that rail would be replaced in the restored track after the 13th year(the second-hand rail being placed woulcd have a remaining average economic life of12 years). Consequently, the figures in parentheses would apply between the 13th and20th year of the economic analysis.

Source: Evaluacion Economica, April 1975 - N de M.

ANNEX 14Table 2

MEXICO

THIRD RAILWAY PROJECT

Calculation of Train Operating Benefits

Basic Assumptions:

Average train characteristics:

1.77 locomotives of 2000 HP1895 Gross tons40 Freight cars20 Years useful life

Bquipment cost per gross ton-hour for the average train:

Nex* .89/ton-hour

Based on the above cost figure, the following savirgsper gross ton-kmwere determined as a function of speed.

Change in speed limit (km/hr):

Savings inFrom To Mex$/Gross ton-km

20 - 30 .014820 - 410 .022330 - 35 .004230 - 40 .007430 - 45 .009930 - 5o .011940 - 45 .002540 - 50 .004550 - 55 .0016

N de M established the normal speed under acceptable running conditionsof the track, given its geometric characteristics) and compared it with the existingand expected low speeds for each one of the lines to be improved. In this way,individual benefits for each of the lines were established. On the average, thespeed increase would amount to 10 kph (between 40 kph and 50 kph), with a unitsaving of Mex$ 0.0045 per gros8-ton-kn.

Source: Evaluacion Econ6mica; April 1975, N de M.

ANNEX lhTable 3

MBEXIC0

THIRD RAILWAY PROJECT

Track F'ehabilitation

Benefits Calculation

a) From increased useful life of sletepers and rails:

Useful Life in YearsWithout WithProject Project

Sleepers 18 25Rails 25 40

Per yearUnits Unit Reduction in SavingsPer Km Km Cost(Mex$) replacements (Million Mex$)(1) . (2) _ (3) (4) (5)=(1)x(2)2(3)x(4)

Sleepers 2000 14,300 125 1/8 - 1/25 55.6Rails 90 (ton) 14,300 4ooo 1/25 - 1/40 77.2

Yearly Savings: 132.8

b) From maintenance cost savings (Mi:Llion Mex$):

Maintenance CostsWithout With

Year the P/ the ProjectZ/

1975 7.5 7.2 0.31976 24.7 15.2 9.51977 39.3 24.6 14.71978 52.1 27.3 24.81979 57.5 33.3 24.21980 57.5 33.3 24.21981 55.8 32.2 23.61982 55.8 32.2 23.61983 55.8 31.9 23.91984 55.4 31.9 23.51985 52.2 31.0 21.21986 45.5 28.3 17.21987 41.3 26.5 14.81988 38.2 25.0 13.2

1/ Shadow price of labor used, 50%

2/ The economic life of equipment used in these calculations varies betweenfive years and twelve years, depending on the equipment.

Source: Evaluaci6n Econ6mica; April 1975. N de M amended by Bank staff.

ANNEX 14Table 4

MEXICO

THIRD RAILWAY PROJECT

Realignment and Bridges

A. Calculation of Savings from the Proposed /eali.Km V

(a) Line V. - The realignment consists of lengthening the present railline fr.T 116 ke to 120 ks, with a resulting reductih n in gradefran 1.5% to 1.0%. The unit benefits are:

116 km x mex$ 0.0120/gross-ton-km - Mex$ 1.392/ton-km120 km x Mex$ 0.0078/gross-ton-km - Mex$ 0.936/ton-km

Savings - Mex$ 0.456/ton-km

(b) Line Ferrocarril Hexicano. The existing grade of 1.6% will be reducedto 1.0%, with an increase in length of 3 km. The unit benefits are:

120 km x Mex$ 0.0128/ gross-ton-km - Max$ 1.536C/ton-km123 km x Mex$ 0.0078/gross-ton-km - Mex$ 0.959I/ton-km

Savings - Mex$ 0.5766/ton-km

(c) Line in Distrito de Cardel - The existing line would have a reductionin grade from 3.2% to 2.5% without a change in length. Consequently,the unit savings are:

132 km x (Mex$ 0.0294vgross-ton-km - Mex$ 0.023/gross-ton-km) =

Savings - Mex$ 1.1088/ton-km

Savings per gross ton-km were applied to 1974 traffic, assuming a trafficgrowth per line of 3.5% p.a. for lines (a) and (b) above,and 7.8% forline (c), based on the same traffic projections and commodity studiesdiscussed and agreed with the Bank.

B. Calculation of Savings from the Use of Heavy Traction Equipment - (Mex$)

Without Proposed With ProposedInvestment Investment

Locomotive power 2000 HP 3600 HPCost 4.9 million 5.4 millionCost per hour 252 278Labor costs per hour 207 207Cost per gross ton-km .0139 (1) .006 (2)

Savings per gross ton-km (1) - (2) = .006

Savings per gross ton-km were applied to 60% of the relevant lines fore-cast traffic.

1/ In all cases it was assumed that, with and without the project, the averagespeed of the trains would be maintained at 40 kph.Source: N de M, modified by Bank staff.

ANNEX 14Table 5

MEXICO

THIRI RAILWAY PROJECT

Locomotives and Rolling Stock

Calculation of Benefits

A. Road Costs

Average road operating costs were obtained from a study called"Costo de Recorrido de los Vehiculos" prepared by the Engineering Instituteof the Universidad Autonoma de Mexico and the SOP in December 1971. Thestudy was based on US experience adapted to the road and vehicle charac-teristics of Mexico. The average vehicle distribution among the varioustypes of trucks and average load factors are based on the result of originand destination studies carried out recently by the SOP. The latter alsoupdated the vehicle operating costs to March 1975. The Bank examined allthe above-mentioned studies and analyses and is satisfied of their validity.The resulting economic operat:Lng costs are as follows:

More than2 Axle 2 Axle

type of TruckAverage capacity, tons 6.7 18Speed of minimum cost, kph 60 50

Qperating Costs, //kmFuel 22.9 54.2Depreciation 30.8 41.Vehicle maintenance and repairs 26.7 38.6Tires 3.5 3.9Oil 1.3 2.0Crew 58.0 69.0Insurance 5.8 19.1Road Maintenance 2.3 5.2

Total, 4/km 151.3 233.4

Average load per truck-, tons 3.3 9.24/net ton-km 45.2 25.4Distribution of truck fLeet, % 71 29

Weighted average, 4/ton--km 39.5

B. Rail Costs

In 1974, the long-run variable costs due to freight traffic amountedto Mex$ 2,808 million; dividing this into 24.5 million tons of cargo trans-ported in that year, results a unit cost of .411.5 per ton-km.

C. Benefits

Total yearly savings per ton-km would then amount to Mex$ 0.395-Mex$ 0.115

or Mex* 0.280/ton-gross-knm.

I/ Based on actual origin and destination studies on trunk federal highways.Source: SOP and N de M, modified by Bank staff.

AWEX1h.Table 6, Page I

MEXICO

THIRD RAIIMAY PRDJECT

VHF, UHF and Car Control Systems

A. VHF and UHF

1. The benefits attributable to improved communications are considerable,particularly regarding yard service, road maintenance and safety. The USconsultants TOPS- On-Line, on September 5, 1973, prepared a,n evaluation of theVHF system which was discussed and accepted by the Bank./. This report quanti-fied only some of the expected benefits. Based on a detailed analysis ofaccident reports during 1970 and 1971, it was established that not less thanMex$ 4.8 million worth of damaged equipment, annually, could be avoided throughmodern and efficient communications. Regarding car delays in terminals, astudy was made of the volume of cars and average delays in the 11 majorterminals of N de M. It was conservatively estimated that half a day could besaved, on the average, because of the VHF system. Consequently, the benefitsdue to VHF are:

LMex$ Million)

Avoiding damage to cars and locomotives 4.8Avoiding car delays in terminal -

1,590,000 (annual cars in terminal.SY)x 0.5 (day/car) x 46.8- (Mex$/day) 37.2

Annual savings 42.0

2. The installation of UHF will reduce car delays on line and reducecrew overtime. This system effect wa )stimated to produce savings inaddition to other improvements on the lines due to the 1975_1979 InvestmentPlan, of Mex$ 16.2 per year. Consequently, the total savings due to VHF andUHF amount to Mex$ 8-.2 million.

B. Car Control Systems

(a) Assuning a cost per car of Mex$ 2.00 per hour, based on car-hire rates,the main benefits of the Advanced Consist and Car Monitoring System(PICL) are:

Annual Savings(Mex$ - Million)

1. Avoiding delays due to yard advance planning 3.5Assumptions: Advance Consist locations: 4Q,

Total car arrivals/day: 9500J/Portion contained in

Advance Consist: 50%Average Savings/car: 1 hour

1/ This element of the project was partly financed under the Second Railwayloan.

2/ Average of arrivals and departures.:/ Based on April 1975 wheel movements data.-,

Source: TOPS-on-line, Ninth Progress Report (June-Sept.'73); EconomicJustification of Advanced Consist and YATS OCS Systems (July18, 1975). Modified by Bank staff.

ANNE ILTable 6, Page 2

Annual Savings(Mext - Million)

2. Avoiding delays in preparingconductor's wheel report 3.5Assumptions: Locations: l.0

Total car departures/day: 9,500Average savirgs/car: 0.5 hour

3. Increased yard control through PICL (Per-manent Inventory of Car Location) 2.6Assumptions: Locations: 10

Cars handled/day: 3,500Average savings/car: 1 hour

4. Improved car distribution 8.8Assumptions: Total cars on line: 50,000

Reduction of carson line: 1%

Sub-total Mex$ 18.4

(b) The savings due to the YATS yard control system are due to improvedcar utilization resulting from be,'ter control of cars in Valle deMexico yard and the satellite yards. It is conservatively estimatedthat one hour per car handled would be saved. This results inannual savings of:

3860 (cars handled/day) x 2 (Mex$/car-day) x 365 kday/year)=

Sub-total Mex$ 2.8 million

Total Savings: 18.4 + 2.8 = Mex$ 21.2 million

Table 7

MEXCO

THLFD RUAIUY PROJECT

Econmric Evaluation Results of N de M1a 1975-1979 Investment Plan

Investment Evaluated lconomic Baturt2/' C i s i ( L~Hfiiionl 1975 M*X~) Based on

Investment Plan 1975 1976 1977 1978 1979 Total Best ntibates (,) by l -by 15

1. Track Renewal 367.0 334.3 262.7 275.1 304.2 t,543.3 14 12 152. Track Rehabilitation 112.5 1)42.0 197.9 163.8 145.4 761.6 21 19 223. Realignments and Bridges 29.0 61.0 78.0 71.1 44.4 283.5 14 12 154. Locomotives and Rolling Stock 1,866.3 1,221.5 1,524.8 1,643.4 602.4 6,858.4 16 14 175. Shop Equipment 53.4 59.-4 196.3 153.9 99 6 562.6 22 20 246. Teleccmunicationa and

Car Control(a) Telecca 62.3 304.0 25.3 - - 39t.6 25 22 27(b) OTC - 10.9 83.0 61.0 1.1 156.0 35 31 38(a) Car Control - 25.5 13.0 8.0 10.8 57.3 25 22 27

17 15 20

1/ Best estimates were based, in all cases on the following assumptions:

(i) Annual traffic growth rate, 7.8S (1975-1980), 5% (1980-1998);(ii) Base year for analysis, 1975;

(iil) Economic iife of project, 20 years (1978-1998)(iv) No salvage value after 20 years;(v) First year benefits, as follows:

Year of First Benefits Benefits in First Year(Million HexT-

1. Track Renewal 1976 1143.62. Track Rehabilitation 1978 220.73. Realignments and Bridges 1976 10.54. Locomotives and Rolling Stock 1975 201.35. Shop Equipment 1977 68.16. Telecommunications and

Operations Control(a) Telecom 1978 58.2(b) C.T.C. a' a/(o) Car Control 1979 79.7

a/ The analysis was made individually for each of the fokr lines where CTC is to be lnstalled, but table above showsthe aggregate results for the program. The individual benefits were:

Yea (mi{i1on MesS)

Teotihuacin-Oriental 1976 4.4Oriental-Veracruz 1977 35.2San Luis Potosi-C4rneros 1978 4.8Irapuato-Guadalajara 1978 0.3

Source: N de M and Bank Estimates

February 1976

ANNEX 15Page 1

MEXICO

THIRD RAILWAY PROJECT

Assumptions Used in Making Forecast Income Account

1. Traffic

Increases in freight traffic are taken from N de M forecasts, revisedby the mission. Since the composiLtion of traffic is showing variations during1975 to 1979, the revenue forecast is calculated for various commodities sepa-rately. For passenger service, the traffic is shown separately for firstclass and second class. Detailed calculations are shown in Tables 1 and 2 ofthis Annex.

2. Tariffs and Revenues

Freight

N de M increased freight and express rates by an overall weightedaverage of 44% and 40%, respectively, effective January 1, 1975. Followingthis, a new book of uniform tariff rates was prepared by the traffic depart-ment of N de M. Since there are 20 class rates, the new rates for each commo-dity depend on the new classification and average haul. Therefore, for eachcommodity, an average haul and a class rate were established. From this rate,the 12.2% Government tax was deducted and shown separately. The resultingrate per ton-km was multiplied by the traffic forecast for that particularcommodity to arrive at total revenue (Table 1 of this Annex).

It was assumed that, in January 1977, the freight rates will beincreased by 10Z, in real terms. It is also assumed that N de M and the Gov-ernment will increase tariffs periodically in order to offset cost increasesdue to inflation.

Passenger

The passenger fares were increased by 22% on the average, effectiveFebruary 1, 1975. The new fares are as follows:

Sleepers 14 centavos/pass-kmFirst class coach - 11 centavos/pass-kmSecond class = 7 centavos/pass-km

From the above fares, the 19% Government tax was deducted and shownseparately. The resulting fares per pass-km were-multiplied by the trafficforecast to arrive at the total revenue (Table 2 of this Annex).

ANNEX 15Page 2

In addition, it was assumed that N de M and the Government wouldincrease fares and curtail or reduce uneconomic/passenger trains to save costsand pay specific compensation for continued unprofitable services. The totalestimated benefits amounted to Mex$ 485 million for 1976 and Mex$ 480 million for1977 to 1979,for which the details are as follows:

1976 1977 1978 1979-e----- Mx$ Million)-------

Passenger fare increases 25 40 40 55Government compensation forunprofitable services /1 400 350 320 265

Savings from uneconomicpassenger trains 60 90 120 160

Total benefits 485 480 480 480

/1 When a service is uneconomic but must be retained for social reasons,the Government should reimburse the railways for the loss which wouldbe the difference between avoidable costs and revenues.

3. Operating Expenses

A cost analysis was conducted for passenger and freight servicesbased on 1974 financial and operating data. This analysis distributed totalcosts between fixed and variable. Based on traffic forecast, operating sta-tistics were calculated, allowing for a reasonable improvement in operatingperformance, e.g., turnaround time, car-km per day, average wagon load,average gross train-load and average number of cars per train. The variablecosts were projected in proportion to traffic growth, and fixed costs wereunchanged. These costs were estimated in terms of 1975 Mexican pesos, whichwere converted from 1974 peso value by applying the average wages and materialprices prevailing in October 1975.

The projection of costs is based on the assumption that the laborforce will not change substantially from its present level during 1975-1979.For comparison, the actual movements in wages and productivity in the years1970-1974 and the corresponding movements projected for 1976-1980 are asfollows:

ANNEX 15Page 3

Percentage1970-1974 1976-1980

(est)

(i) Increase in wages at currentprices 65% 50%

(ii) Increase in cost, of livingindex for workers 66% 49%

(iii) Increase/decrease in realwages (i) + (ii) 0.99 1.02

(iv) Increase in productivityper man employed (pass-km +net ton-km) . total permanentstaff of N de M 30% 30%

February 1976

MEXICo

TIFmLD RAILWAY PRCd8LT

Freight Revenue Forecast 1975-1979(in Me$ million) __

1975 Rates R E V E N U E S RK_

Average Freight per ton-ku 1975 1976 1977 1978 '975 _.,7,_19.8aul / Class (Ceotavo,)

AGRICULTURE PRODUCTS

Cattle feed (Porrajes) 550 10 14.7 51.7 52.6 55.7 59.1 f2.5 t,1 7

Beans (Frijol) 725 13 11.3 24.3 24.3 25.1 25.8 26.6 1 6.C

Corn (Mai.) 575 15 11.6 129.9 135.7 141.1 146.7 1537O

Sorghon Seeds (Snoillas de Sorgo) 750 15 10.6 127.2 137.4 142.9 148.6 35SiS '1-.6

Oil seeds (S_illas de oleagi.nsas) 525 10 14.9 18.8 20.3 21.0 21.9 22.8 :)4.8

,Iheat (Trigo) 650 10 13.9 170.8 177.5 186.4 195.7 205.4 735.8

Miscel laeo.. (Otroc) 16.2 111.9 115.3 118.7 122.3 120.0 ___4___

Sub-Tota; 634.6 663.1 690.8 720.1 751.6

MINERAL FRODUCTS

Coal (Carbon ainer.l) 11 l9 18.2 48.8 51.0 61.9 68.4 71.2 301.3

Coke (Coke) 400 13 14.3 78.8 91,4 93.0 106.8 108.1 478.1

Flourapar (Fluorite) 700 17 9.8 76.2 76.2 79.3 82.4 85.i 399.9

Iron ore (Mineral de hi rro) 775 20 8.0 301.4 465.8 480.0 683.1 700.4 2.,630.7

Oth-r ein. nd Conc.(Otros Minerale- y Co,c.) 800 13 11.6 104.5 107.6 110.9 114.3 117.7 555 7

Iron Bars (Hitrro en barrae) 725 10 13.5 97.3 107.8 127.2 130.' 135.5 .398.

Lead gats (PSslse n barren) 900 9 13.8 38.0 28.8 29.7 30.5 31.5 148.5

B.ryte (8arita) 825 17 9.6 32.7 32.7 34.7 36.3 38.2 I7&.6

Mlnscelleneona (Otroc' 9.8 61.0162.9 64.6 66.5 68926223.2

Sub-Total 828.7 1.024.2 1,081.3 1,316.C 1.356.6 .609.E

PETROLIYM PRODUCTS

Asphalt (sfalto) 700 11 13.1 21.1 22.9 24.6 26.6 28.7 1A3.9

Diesel (Diesel) 300 6 22.0 50.3 55.4 57.6 59.8 62.3 285,.

Gasoline (Casoline) 250 9 23.4 32.3 32.8 33.7 34.4 35.1 *, 3

Gas (Ga. conbustible) 1,250 6 16.0 48.6 48.6 48.6 48.6 48.6 243.0

Yuel oil fC(mab.tolao) 500 13 13.9 222.5 205.6 215.0 224.9 235.2 ;103.2

miecellfteous (Otros) 22.3 20.7 21.4 22.1 2.2.7 23.4 Z10.3

Sob-Total 395.5 386.7 401.6 417.(0 433.3 2,034.1

INORGAIIC PRODUCTS

Send (Arena Silica) 575 10 14.6 47.5 96.8 61.5 66.3 71.5 303.6

Sulpher (Asufre) 275 15 16.8 73.9 73.9 78.3 83.0 88.0 397.1

Stone (Piedr. Caliza) 90 16 26.9 57.6 75,3 80.4 82.0 83.7 379.0

Salt (Sal) 635 13 12.4 25.2 25.2 27.5 29.9 32.2 140.0

Ni.celleous (Otro.) 14.0 115.5 119.0 122.5 126.3 130.1 613.4

86b-Total 319.7 350.2 370.2 387.5 405.5 1.833.1

IIIDUSTRIAL PRODUCTS

Ruger (Azuc-r) 500 10 15.2 86.2 90.4 95.0 99.7 104.7 476.0

Ceneot (Cesdeto) 130 18 18.0 66.6 70.6 74.9 79.4 84.1 375.6

Scrap (Chtatrra) 675 10 13.8 104.3 109.6 115.1 120.8 126.8 576.6

Fertili2er (Fertilicante) 550 10 14.0 246.1 271.3 311.9 332.1 347.3 1,508.7

Steel for constructiou (Fierro) 775 8 15.4 55.6 58.7 60.1 60.8 81.8 317.0

Steel sheets & plates (Lsines y plces de acero) 800 9 14.2 67.0 86.1 93.6 115.0 143.6 505.3

Brows Sugar (Mscsboo) 200 13 19.8 17.8 18.1 18.6 19.0 19.3 12.8

Auto Perts (Materiel d. ensambl- de vehiculos) 1.000 1 24.1 55.4 62.7 66.3 70.4 74.7 329.5

Molasses (Miel de cane) 450 12 14.5 20.9 22.3 22.3 22.3 22.3 110.1

Cellulose (Celoloss) 900 10 12.8 26.2 29.7 33.2 36.7 40.2 166.0

Bodiua1 Products (Produetos do sodie) 650 8 16.2 25.3 27.1 29.3 31.4 33.9 147.0

Industrial chaMical products (Froducto Q.1iico led.) 725 5 20.8 103.0 113.9 125.0 137.5 151.2 630.6

Iron nd Steel pipe. (Tuberias de hierto y *cero) 850 6 17.6 51.6 52.8 55.4 58.1 59.5 277.4

Miscellaneou (Otto.) 18.4 435.7 448.8 462.2 475.8 490.2 2.312.7

Sub-Tot-l 1,361.7 1,462.1 1,562.9 1,659.0 1,779.6 7,825.3

VARIOUS PRODUCTS (producto varios) 17.5 89.8 92.6 95.4 98.2 101.2 477.2

TOTAL CARLOAD REVENUE (Flete tetl carrt cotero) 3,630.0 3,978.9 4,202.2 4,600.8 4,827.8 21,239.7

L.C.L. REVENUI (Flete en manos d. carro) 14.9 14.9 14.9 14.9 14.9 74.5

Grand Total 3,644.9 3,993.8 4,217.1 4,615.7 4,842.7 21,314.2

1/ 1974 average haul v.e. sdjusted to the nearest freight clasoificati-o

Source: 1 de M end B, Estiaete.July 1975

THIRAIIMAY PROJECT

-PseaUm 3wi7eot-175-1979( Mai$* million)

1975 Fares TOrALper 1975 1976 1977 1978 1979 1975-1979

nu-km P6s.-km Revenue Paas-4m Rvenue pass-a Revenue ?eas-4w Revenue Nasa-lw Revenue RL.'emues

First el...

Sleeper 14C 104.1 14.6 109.1 15.3 114.5 16.0 119.7 16.8 125.0 17.5 80.2Ooach llC 595.7 65.6 625.5 66.8 655.3 72.1 "5.1 75.4 714.9 78.6Sub-Total 80.2 84.1 88.1 92.2 96.1 440.7

S cgld Cus: 7C; 2,14U.1 150.4 2,255.5 157.9 2,362.9 165.4 2,470.3 172.9 2,577.7 180.4 827.0

Total 230.6 242.0 253.5 265.1 276.5 1,267.7

Less: Ooyant tax 191 (36.8) (36.6) (40.4) (42.3) (44.1) (202.2)

met 41s 193.6 203,4 213.1 222.8 Z2.4

0.1 0.1 C.C *.2 0.3 0.9

1411;olloum 0.5 0.5 0.6 0.6 0.7 2.9

Orand Total 194.4 204.0 213.9 223.6 233.4 1,069.3

Mdjuawa a6WI *a to less of tffic ftaw,weaei. of a_ Ctram 172.0 186.0 197.0 2.0 215.0

80urc: N de N and Sank Zatiatss

Fa'rw1y 2.976

ANNEX 16Page 1

MEXCO

THIRD RAILWAY PROJECT

Details of Financing Plan

1. N de M's cash flow and financing plan are shown in Table 10 ofthe report. Amounts are shown in 19?5 Mexican pesos for years 1975through 1979; therefore, price contingencies are excluded. Physicalcontingencies are also excluded from the calculations.

2. The financing plan covers the period of the investment planrather than that of the project years of 1976-1977. It was convenientto do so because the project items extended into 1978.

3. The plan depends largely on Government financial support,about 48% of total funds requirement.

4. N de M's long-term and short- and medium-term debts for 1974are given in Table 1 of this Annex. The terms and conditions of localand foreign borrowings are as follows:

Exim Bank

(a) 70% of loan at 7.5% interest rate for 10 years. Repaymentsare between year 5 and year 10.

(b) 30% of loan at 0.9% over the prime rate. Repayments arebetween year 2 and year 10.

(c) lO% of the loan acquired during 1976-1979 would be at 8%interest rate. Repayments are between year 5 and year 10.Signals, locomotives and track structures will be purchasedfrom this loan.

World Bank

100% of loan at 8.5% for 25 years with four years grace plusstandard commitment charges.

ANNEX 16Page 2

Export Development Bank Canada

(a) 60% of loan at 7-1/2% interest rate for 12 years.Repayments are between year 10 and year 12.

(b) 40% of loan at 1.5% over the prime rate. Repaymentsare between year 4 and year 6.

Banco Nacional de Obras y Servicios Publicos

At an interest rate of 2% over the prime rate.Repayments are between year 3 and year 7.

Swiss Bank

(a) 100( of loan at 3.75% higher than Swiss National Bank'sinterest rate for 10 years.

Other Sources

(a) Through NAFINSA at 14.5% interest rate. Repaymentsyear 1 to year 5.

(b) Other - estimated interest rate 9% and repayments in5 years.

5. The exchange rate used is Mex$ 12.5 = US$1.

6. The financing plan includes 200 passenger cars and 30 mailcars which have already been purchased from Canada and Swiss Bankrespectively; the Government wil-L assume the debt service charges.

February 1976

ANNEX 16Table 1

MEXICO

THIRD RAILWAY PROJECT

Long-term, Short- and Medium-term Loans as of December 31, 1974

Foreign Creditors MPxr MilJ_kyn

Exim Bank (Through Nacional Financiera, S.A.) 1,552.3Export Development Canada 190.5United States Steel 50.0IBRD 550.8Various 81.5

Total 2,425.1

Local Creditors

Constructora Nacional de Carros de Ferrocarril 1,059.2Banco Nacional de Obras y Servicios Publicos, S.A. 1,177.2Nacional Financiera 83.8Various 27.8

Total 2,348.0

GRAND TOTAL 4,773.1

November 1975

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