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Report No.

t__I '1

~~1IN This report was prepared for use within the 13ank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may nol be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENr INTERNATIONAL DEVELOPMENT ASSOCIATION

Public Disclosure Authorized

THE TRANSPORT SECTOR OF MEXICO

.in ftour volume s.ei8)

VOLUME I SUMMARY

Public Disclosure Authorized

PTR-88

May 13;

1971

MEXICO THE TRANSPORT SECTOq Table of Contents Page MAP (IBRD 3146 - Mexico Transportation Network) FORR.JORD

1

TNTRnODTTlT TOn

2

TPOLTTY AND PLJT.RTING A. B.

Present PT ivng and Coor nation Alternatives to Improve Transport Planning and

C.

National Transport Policy

4 L

Coordina+ion

II.

RAILWAYS Background

D.

±l1t

C. D. E.

Policy Financial Aspects Investment Strategy

F.i* r II!.

TV.

14

A.

Tl

0

12

Rta-LLWay

-

14 £-IUU±teIL

-

U UecoJu,,iendationAs

14

15 20 C,

r

ROADS AND ROO) T.RA1NSPORT

22

A. B.

Tne Road System Highway Administration

22 23

C.

Highway Planning

24

D. E. F. G. H.

Highuay Design, Construction and Maintenance Financing of Investment and .ecurrent Expenditures Road User Charges Toll Highways and Bridges Road Transport

26 28 30

I.CPEPEX (Petroleum Transport) A. B. C. D. E.

General Petroleum Transport Facilities Traffic Trends Past and Future Investments Transport Policy and Coordination

34 36 39 39 40 42 44 46

Table of Contents (Continued) Pane

V.

PORTS

Ji8

8

B. Policy and Organization Port- Facities

C.

hl 50

Operations

.An

D. Finances E.

,-tr .

VI.

aTII.

1- U UUJ.

T U

I.L .

i -L

nd

Ir,ves wm,+

O.J4L

.L

Strateg

51

4J%A.~U~

F. Recommendations

52

CIVIL AVIATION

55

A.

Background

55

B. C. D.

Policy and Planning ;Eanagement and Operations Reconmendations

v6

URBA1

TRANSPUN.T

PIMEX A

59 63 66

'

&55= 4

/a

they do not n-i-um-ierous other parties are also involved, each with different degrees and types of interest. The investmrlent programs of the tihree above lKinistries are submitted to and approved by

the Ministry of the Presidency, particularly its Department of Investments, and by a Joint Presidency/ilnistry of Finance iSub-Jomnmission on Investment Financing". Even though ultimate decisions are made in the Presidency, transport matters are of interest to other It'inistries also. The !N1inistrie;3 of Agriculture and 'iydraulic Resources are concerned with rural roads. The ilinistry of Commerce and Industries is involved in developing the transpor-t equipment industry (e.g. trucks, shipbuilding, railway freight cars, etc.). The Ptinistry of F'inance in addition to its concern about the financing of -.nvestment play's the traditional taxing, subsidizing and budgetary control roles. Other eibinistries (e.g. Fomento, Patrimonia j'!acional) have their owl special interests in aspects of investment in or owrnership of transport infrastructure.

Investment decisions must also take into account the views of such "decentralized organizations" as the National Railw;y,s (INacionales de Mexi co), the Airport and Auxiliary Services Authority (ASA)Al/the Toll Roads and Bridges Authority (Caminos y Puentes) and PEIEX (the national oil company), as well as such "state enterprises" as the Pacifico Railway, Aeronaves de Iexico (the national airline) among others. vi. Problems involving transportation and transport coordination natters are di-scussed by a variety of permanent Commissions. Important decisions are taken directly at the Presidential level. Finally, given the political arrangements in M,exico, the main political party and the workers' syndicates have some influence in, among other things, appointments to key decision-makirng positions. In sum,i, therefore, the excellent organizational charts and legislative texts which e-dst in liexico are only partial guides to the real process of decision and policy making. (ii)

iniLstr77 of Communications and Transport (SCT)

vii. As its title indicates this Ministry now has two important functions-communications (i.e. postal, telephone. telegraph, radio and TV services) and transport. It is doub ul whether any one iinister can effectively handle both activities any longer.- The time has probablv corme to establish a strong .eparate Ministry of Transport thiat would be capable of formulating and responsible for implementiing a National Transport Policy. viii.

Throigh a vaJety of De'-artmnents -10---

---

.

_

(Ii recci ones D

eer

the h

present Ministry has broad responsibility for a) aviation operations and associated activities (lie-ensing, saffety, radl-io -aids,etc.), though not for 1/ By presidential decree, it was recently allowed to engage in airport construction in addition to its airport operation and maintenance functions. 2/ This is not to be read as a criticism of past or the present Ministers. On the contrary, they have been some of the ablest and most dedicated of i.exican citizens.

the construction, maintenance or operations of airports; b) the use of the i o and the i sue of rou+te licenses HhwTJayr Syirst+m t+.h-rouh t.rafic po]n'c to truck and bus route operators; c) the technical supervision of the rf which are , rato of others -- s ay1s and vdirec A,Diation n_ Ra in the process of being absorbed into th:e Ilationol Railways; d) the setting Federali

o^ 'Ji.

ehia

UC¼Li 11

Lt%

st~ar.darAs Jn toe 0 U. LI .Ad.'Jf

vlAS

operation a J..I

of' -Li

C...

rnpr

-it

evcs^dtefix-v

U.iI~4 0iLi 1

V .1-

-. 'I

Wa.

ing of rates for air, lard and sea transport services and all operations (e.g.

port cargo han'ing

reatn

to

and--4-

e 4hes-

epaauio--

an --

rsn --

of transport statistics, subject to technical standards laid down by the llinistr-y of Comm,erce and inldustr-y' s Federal Stats stics Departm,ent. 3y law, the SOT is -Lto ad-vise the Ministr-y of Public um r / oP/ on the formulation of programs for the construction of roads, airports, rail(empha,is U way stations and road tranEport terminals operaling under concessiunr-s Through this advisory function and its direct control over transport added). prices, the SOT has the legal power to influence significantly the demand for transport facilities and the resulting investment requirements, including their timing and location. There is, in fact, a -Transport Coordination Comiussion' under thie SCT which reports to the Miinister. In practice, however, it is more of a consultative group concerned Wihl th-e technica1 aspects of inter-miod`l integration and facilitation issues rather than with the economic policy iss-ies involved in tne transport sector. i are set out and described more specificallv so that the various activities can be brought together for common purposes. It would also permit the railway's Board of Directors and the Government itself to see the direction in which rail-2ay policies are heading and wihat they imply economically, sociall,r and finnncial v for the nat-onn 7y this menans, some measure of thenr progre s of the railway's proper role in the economy is possible and those given responn hiblithi can be held accountable. At present, there is no reol test of success or failure of railway management because no one seems clear as To what they are trying to maimiYze or ninimize, ix.

A

fvirthPr docenpn+t goverrning all railway activities, and which is

the cornerstone of the Corporate Plan, rmght be termed the "Railway's Phi'o. sophy"Tt-hold outline the objectives of the ralway; the general directi:r required to attain the objectives; and the railway's relationship to the Governmvernt (e.g. it should rot be so -glated as to restrict its ability 'D compete freely with otlher modes of transport), to its customers (e.g. it should

supply

services

at price9

qualy 4

ulk

quoantity

WLh

L

UaUttra .l

U

dt Al

hold customers) and to its competitors (e.g. they should expect aggressive com.petition in mar whits >>ch wiLll be profitable-to the It u]d cover all railway activities and should result from discussions with senior "

executives

of

the

-LLiliVay

and

`e

ov-erru±ientL.

The -_

nurrence_

and their involvement in the formulation of the document, tlA, eir acDi-L v_Lities wil-l- be chac^rne'l'ledu t-lowards thle fuP£` '

.

--

o-I-

these

p

U

_s,

will ensure that the

Lij

Ii

A public presentation of this document could install confidence in the public Uiau 'uale railwa± means serious business and that it intends to serve the natuon.

It wTould also act as a berchmark for the railways management to aim. x. Corporate planning will put new demands on the attitude of railwlj. management to its responsibilities. At present, raliway management is primarily operations-oriented. This approach has produced a technically wel'lconstructed and maintained railway with the capacity of handling a greater volume of traffic. The railwzay, therefore, is in good physical sllape to contribute to the growth in the economy. To fulfill the part it has to play in this growJth, the raillway management must recognize the changing environment that today faces most of the i ds 'orl railways applies also in Mexico but they rmust be given the freedom by Government to respond. xi. A basic factor then is that railway management must change its attitudes from operations orientation to a business or marketing orientations It wrill have to concentrate on market analysis, systems procedures, financial'. planning, operations and investment planning and economic evaluations. 1Jhile it must be given both the responsibility for the operation of the railway and

- 17 -

substantial freedom within overall governmental economic policies, it muEt be held accountable for the results. xii. The radical approach suggested here for future railway policy and management uill require the further development and use of managerial skills, This can be accomplished by (a) bringinig into the railway some senior Meicans who have gained experience in the required fields (costing. marketing. personnel, finance, planning, etc.) elsehlrere; (b) using a small group of international advisers for a limited tlme! (G) sending selrtpd rmnnage-ment per,cnne', for training abroad; and (d) creating a stcff college with the highest standa.As. xiii. A fundamental step in this process of revitalizing the railway is thet GovPrnmnntfs plnn for +he.inif_ieTHnn of all 4exican railways asasingle enterprise. The first stages have already been implemented. Completion is strongly suported by +he + rnssion. r uv Thepr i c no cronom,v reason whyr a ralwa 1-rnh-ir A 1; mi + -4 + r +-"nrn port activities only to railway operations. It is a service industry provi,-'ng "tUr&---port" tos-' Jts customers. It-U -- , 4-, -P-eor eil ..Ln b,oh the4 ~ 1X--4 ew"J4 ..J~L~@ .. UL I ways' and shippers' interest if the railway could provide all or part of this tLrans-portL1 scu Vjice lbJy other imeans. AJccordLingJly, 4J-AiU rIl,LVI, i I ULcoidLUts.L-b UIdat case for permitting the railway to widen the scope of its transport funct½-on.3 to becoame, in effect, a tranIsportatin corporation, should be examned. U

.5. VL

- 4

UL13J

UJ~.~JL1

.'

VJ4

VAL~,

A

-

xv. One regulation -- which inhibits the use of rail transport for somae goods -- prevents trucks from entering railway (and port) property for d-rect loading and unloading by the trucker's employees. using railway labor may cause added costs and delays and induce seme shippers to send their goods by truck directly to the destination. The effect of this regulation should ba examined ancd consideration given to its abandonment. D.

Financial Aspects

xvi. It,is paradoxical that in a period of increasing efficiency andl productivity and of solid traffic growth the financial position of the railwJays should have deteriorated to the extent that it might well threaten the monetary system. 1Thnereas costs in real terms have been reduced and revenues have improved proportionately to the increase in traffic, the combined ef'fect of these two factors has been insufficient to offset rising labor and mater-,al costs. 14easures to correct the deteriorating financial situation are outl; lined below. (a) Freight Service xvii. The railways have contributed to the economic growth of the countr, by carrying a steadily increasing volume of goods at low and, in real terms, steadily relucing cost. In one sense, the principal beneficiaries have becn the railway staff who have absorbed as wages/salaries all the increase in revenue frora the greater work and investment by the railway. In another sense, the principal beneficiaries from the expansion of railway freight activity have been those producers and consumers of the heavy volumes of

orimarv Droducts and industrialJ raw mMterHqIas that, the rnillwlq monve in hvflk over long distances and which are goods most suited to rail transport. Except for insiLgnificant adjustment, freight rnates have rTr,n nr nnhnnapl fonr 11 years. The avei-age freight revenue per ton-km for all lH1exican railways is 1C.2 centaVos (enuiv1entr. t 1_19 U per IT ton-ile). This is one of the lowoest levels of railw ay rates in any country of the world, being passed only in India (sinr.e

the

19(66

Heun1iionI.in)

P +ohe ,-inpee)

in

Korean

anri

in

Bra'il --

1l

of' ;'i

are countries where wage rates and per capita GHP are substantially lower than in

Me

co.

.. ii.i

G osts

developed by ther

si

n-A; cate +t-h

r

TA---

f

g

rates on most commodities exceed broadly defined long run marginal costs. For the

1.ILdL.L

IIoLLIV4L,Cy

of

rates which,II

L

l tIoetUf

thUisLO

U,-Uj

the

r1ISiOnU

recomrrU,ri.us

they should now be increased. For the rem2inder, a 5,general increase is recoUruendeuUd now LAo meet 'i'i1e cost of± thei 1Y'7 Labor Law. OuI.UwItUI increjases should be made in the future to the extent necessary to compensate for any erosion in the value of the currency. (b) Tax on Gross Freight Revenues :ux. hlatever the original justification for the 12.2rD' tax on freight rates, the advantages of continuing it are unclear. The Government does not t beneit 1 ' since it hands the proceeds back to the rai_lways as part of the subsidy to meet current operating losses. The tax cannot be regarded as a user charge" in the traditlonal sense of a payment to Uovernment to reflect the costs of providing some specific service out of public funds. Since the tax is included in all the railway's tariffs its impact on low value goods, such as agricultural products consumed by the poor, is regressive as compared with the effect on higher value, generally higher rated manufactured goods. The railwiay's customers quite rightly regard it as part of the cost to then of using rail transport and take decisions accordingly. Pemex, for example, took the railway rate in presenting to the mission their estimates of the relative costs of using road or rail for the movement of petroleum products. As an "across-the-board t tax it limits the pricing flexibility of the railTay by raising some rates above levels which would be remunerative but are needeo to be competitive. Some traffic, therefore, which might go by rail is moved, less economically by other modes. The mission recommends that the tax shouw.( be abolished. This does not necessarily mean, however, that all freight rates would or should be reduced by the amount of the tax. For those goods which. ncxr move at rates below marginal cost it should be absorbed as part of the increcaes recommended earlier. On other commodities, the railway should use the fle:i-bility which its abolition will give and adjust freight rates in a manner thal. will increase traffic and revenues. (c) Passenger Train Services xx. The chief contributors to the operating deficits of the railways are the services provided by nassenger trnins; i.e. nassengers and their baggage express and mails. A study of the Nacionales costs shows that in 1968 the "znvoi c]hb½ est"1/of operating 'aansenger trains. even when calculated on the 4L

e

/ . 4A±II

L.'.J _-dJ-44.VCU

4id-4 U4'AL

-MA-L~

AI

LIC-

-_CV-. V

",

I_-4.Tt

5n LL

AL

11

ArLI

4.

I

I10w

;4s_

- 21 -

(a) I!ithin the framework of a National Transport Policy, railway management should establish a "Corporate Plan"; conduct its business withthe objective of meeting market and service demands; and accept full responsibility and accountability for its operating results and investment decisions. (b) A major effort must be made to bring new men with modern business skills into the railway and also to train existing senior officials in these techniques. This training may reauire assistance in the form of advisers from abroad and sending Mexican staff to foreign railways. (c) The tax on gross freight revenues should be discontinued to increase flexibility in rate making. (d) Freight rates which fail to cover marginal costs sqhouild hb ircr at least to cover these costs. (e) Freight rates shoulld be raised by a mTninirnx-m on average to compensate for the added cost of the 1970 Labor Law, and as necessay +kereafter to compensate for erosion in the valaue of the currency. (f)

Passenger revenue should be equated to at least ing services; where a service cannot be made to pay an," yet r.ust bk-e retair.ed f41or social- reasons, 4theII Government should reimburse the railways for the loss.

(g) Prior to 1976 the labor force should not be allowed to inc ease~ arnd shou I berduced ee L.C e d.I1U" J.IVULJU.LdLie ±LLVUU%0L4 if _L.L pasn,e C 1 ± are curtailed. An agreement on labor rationalization and r-e-training sho-uld be negotiated wiwth the syndicates. (ih)

E-: plian

snould ue developed wlhucn WUoU ad I ow

Wive

ra.L±way

to diversify its transportation activities so that it can play i-ts role in an integrated transport system. (i) Investment should as far as possible be confined to items and equipment which give flexibility and can be easily identified as giving immediate economic returns. xxvii. Should these courses of action be adopted and rigorously pursuecl, it IJould be reasonable to expect that by 1976 the railways could move out of a financial operating deficit position into one of a surplus, and the Gcvernment's cash support to the railway could be reduced from the presentl level of over Pesos 2,000 million annually to about Pesos 650 million, with the latter beting practically all in repayment of short-term supplier's credit¢q If the railways could obtain financial aid for investment on less onerous repayment term's than in the past the financial support needed from Government c-.Lad be even further redaced.

- 22 ROAD AND ROAD TRANSPORT

III. A. i.

hbir .7

The Road System

t1.h

v

By contrast with railway network, much of which had been laid dozn

101 tP Rcrr Ii,+inn __, . -v

-

o_U

-

Maovo on t c -

-.

n

ro

--

_systm Jc

-,

-v fI-

-_

ofw mcioh reoc+

z-_

-,_..

less than 1,000 Ian of low standard roads in 1929 it

iLL

IiSe

task..of. UdeveLopin

the ni&vor. U of U..

-

__

'c nt

-

I

a; n-eV-

. .xJ. tz

is now about 70,000 kmlIn

VonCl.r roads

fel

'he

Fe-r;'

Government. In 1925, it set up a Comision Nacional de Caminos funded by the proceeds of an earmarked gasoline tax, and made it responsible for the construction and maintenance of the primary highwJay network. 1' hile the objscti-ve of providing primary road interconnections among Mexico City, the State ^apitals, major ports and border crossings, as well as other important cente3,of production and consumption has not yet been fully achieved, the developr,'r_. t'fforts made so far have absorbed the bulk of the human and budgetary resov (:.-available for road development in Mexico. Between 1950-60, for example, primary free roads were added to the system at he rate of nearly 1,000 km p-,'Tear -- from 11,7i4 kin to 21, Im. In the next five years, the yearly ra,e km5 dropped to 740 km, and has been about 525 km p.a. subsequently. This is because increasing traffic, heavier vehicles and traffic congestion made it i1ecessary to devote a greater proportion of funds to betterment works and to the provision of alternative high standard expresswiays. iii. The Federal and State governments share the responsibility for developing the secondary road network which has been growing from about h,2C() Iam in 1940 to 29,000 km in 1969 or at a slightly faster pace than primary rcad1 .s but with lower construc-tion standards. iv. The great gap in IIexico's road development until the 1950's was tl. limited attention given to tertiary/feeder and access roads. A quasiautonomous organization, the Comite AJacional de Caminos Vecinales, was created in 1949 to assist in the construction offeeder and access roads. One-third of the cost of such roads is met by the Federal Government, with the remainder being equally shared by the particular State Government concerned and the local interested parties,

often in

the form of voluntary vhb::;>

'owiever, a major effort on the work of providing rural roads begun wVith the iirect intervention by the Mlinistrv for Public 1'orks (SOP) in the 196 0's. loads built under the "tripartite" sharing system then increased from 2,920 km in 1960 to ahont, 8920 km iin 1969. Horev ir sane poor States, +he ir, Federal Government financed the full cost of some local roads ('obras onmpnlmentnrias'). Finally, in 1969, the Federal Government irntiated a coordinated program to improve rural village life by building short access roads and proii9;ng iwater supply, ec ty and health facilities. Prior:L tis given to villages of 500 to 2,500 inhabitants that are located not more tPian 10 km from an existing all-weather road. The program calls for building some 600 km of one-lane, gravel roads annually.

- 23 -

V.

One result of the priority properly placed on the development of

primary roads, is that a high proportion of these roads have been built vo paved standards - the proportion has been around 60% since 1950. I'hile it is possible that some of the existing roads could have been built to gravel rather than 1to paved standards, even at the expense of higher maintenance costs, traffic volumes over much of the sys-tem are generally sufficiently high to warrant the existing high proportion of paved roads. vi. The conclusion thus emerges that, as Mlexico has built a fairly .iell developed system of main highways, the emphasis must nowi shift more to the development of secondary and feeder roads. This conclusion is strengthe.;d by the fact that about 45;' of the population, say, 22 million people, still live in wide:ly dispersed and isolated villages and farms, which require bet.t. access to integrate themi into the country's economic life. 3.

lighwjay Administration

vii. The responsibility for administering the hi-h-way netwtork and reCILlatinSz road transport is vested in the Federal and State Governments. The Federal Government is in charge specifically cf tlhe "vias generales de ccmuf.cacion" (general communication routes). which in the case of highways are defined as follows: (i) highways linldng up foreign highways across the nati nal hbordIPr; (ii)

high,.ays cnOnnec ting tw.Jo or moncre Federal entities

(States, territories); and, (iii)

highways constructed either fully or in major part. out of Feder_1 f1mvLnds.

In

additUion., since the creation in

1932 of the

biparti

te

cooperation sys-m:

with the Stales and the creation in 1 949 of the tripartite cooperation system T,Ti th

thi

q5.!x

now extends, in varying forms and degrees, over the entire highway network from epres:,ways to intersvtate lhigh¶-Tay.s, to state hni ghways and to feeder and rural access roads. viii.

At the Federal level, the Hiinistry of Public Horks (SOP) and ta-i3

.rHLLLstr-r ofL Coru,-]nic.M CtiLons a-nd

-, ansort (SCIT)

slh.-ae "whe m,Idain rsoiul,y

for highi-ay matters. SOP builds and maintains Federal highwtays and bridges -I_dl as si st's in thl- constr-uction ard' m.Lintenance of State ank' 'locali roadus .nd bridges. SCT is co-ncerned ,tith issuing licenses for public road transporters. establishiing taxiffs and policing th-e Federal highwa-s. Although the la g- es SCT the tas' of advising SOP on the formulation of yearly highway constru-czion prograras, SCT has rnot, in fact, been carryilg out thizs function effectively ardu SOP has taken over the planning of Federal highways. For the operation of Federal toll roads and bridges, an autonomous state-owned organization, C2rinos y Puentes Federales de Ingresos (Caminos) was created in 1959 to administer and maintain existing and new toll facilities built by SOP iath funds of Caminocs The lack of coordination between SOP, SCT and Caminos creates problems r:hich will be more full-, discussed later.

- 24 ix. At the State level. special highway boards (Juntas Locales de Caminos) were established as early as 1932 and are composed of the Governor of the State. reDresentatives of the State Cha,m,ber of Commerce. road users and SOP. Annual State highway programs are submitted for technical scrutiny and administrative action to the SOP's Denartrrent of Roads in Cooneration since 50"; of the construction costs is borne by the Federal Governiment. TKe SOP representatives are genernlyx the only highway engineers on the .Tint_s and, therefore, play an important role in the highw!ay construction and maint_-nnnPGe o)pernations of t.he States.Q

x.

At the local level, the S0P and the State Juntas share the task cf planning and constructing local roads with the private interested parties. Since 1969, SOP is also directly involved in buil ding local roads through the rural access road program financed entirely with Federal funds (see paa

4).

xi. ~ Uihay -~.-x Xm,i.U1 stration in -LIS -o Wven is high.01.Aly. cenVr 13ized, with SOP exercising powjer down to the level of feeder and access roads. Lu-L`ng the ear-Jy development

of

"de tr.unk hi1h¶ay

of highway administration was probably justified. s>;f ofe.,ihasis tUowards U UJ~ u IIj~.~L A U L~

I1J.

'LithedvlpetoAeon A~U V PLUU1 L

ue.;ora. cenrdi--d.ji2

r1-

The presently required fadlclras dIlU -LUUocLL

UU IL~-UV11U1.iJ,Y

.LVcldU0

however, requires a greater delegation of power to the States. This tran t t:s of responsibility should go !i pi passu', -with an impruvuenet in highway planning, construction and maintenance skills in the States. It will alsc require a classification of roaas based more on their real economic functano.

than administrative division. A thorough analysis of the existing highway system of eiexico would probably lead to the downgrading of some roads now classified as Federal since they are of minor significance and the upgradirig of some State roads which perform an economic role far beyond the interests of a single State. Since this may, however, require legislative action as it would affect the definition of "tvias generales de comunicaciont (para. vii). it should be carefully studied and pl nned. C.

Highway Planning

xii. As mentioned earlier, SOP has in effect full responsibility for the planning of Federal highvQays and through its representative on the Sta'.e Juntas and its review of annual State plans it influences the planning of State as well as local roads. The task, of course, is formidable and, whille SOP's planning skills have improved considerably, what is missing is an explicit statement of a national policy tow;ards highnways and objectives which would permit the planning function to be carried ou1t writhin an opera-tional frame of reference. In practice, of course, no scientific formula (other than a purely market test) exists for distributing limited investmen-c funds among such diverse and competing demands as expressways that mostly save time (often leisure time) to car travellers, feeder roads that help stimulate agricultural production and rural access roads that primarily yield social and administrative benefits to otherAise isolated populations. Although in the final analysis investment allocations are determined by the Presidency, the burden of anticipating such fundamental resource allocation decisions should not be placed on the SOP's planners. Nevertheless, SOP caa

- 25 constructively contribute to the decision-maidng process by evaluating the c7sts and benefits of alternative policies and actively seeking explicit guidance cn the choices to be made. xiii. Given the need to integrate the large rural population into the country's economic mainstream and, at the same time,to make it attractive to stay on the land in order to stem the tide of urbarization, the planning of feeder and rural access roads must assume high priority. Such planning requires an integrated approach and inter-disciplinary studies far beyond t!e normal scope of competence of a traditional public works authority. Theref^,Te, the desirability of creating a National Rural Advisory Council - reporting to the Ministry of the Presidency and acting through inter-ministerial planning committees -- for feeder roads and rural access roads should be thoroughly investigated. These committees would comprise representatives of SOP/SCT and such Ministries as Agricilture. He1Ith. Educationn Unojend_ etc.j- so thaLt r,f1_ potential benefits from investments wfould, in fact, materialize to the fu'.le;.t extent through cnnrdiinatedi ac+onn- The work nf these o-nmMittpeq chclm rd he supported at the State and regional levels by appropriate local organizaticns, Particu1larly imnortnnt woill hbe fAllow-unp studies to assess the benefits Or the investments and to gain useful insights and experience for future plannir-. xiv.

This segregation of the planning of tertiary or local feeder and

rral access

r-cads,

woulld

allo 'I-

Q

'I--Itonlarnin

-

to-be -4 dlece -4-A

l-1_-

to the main highway network and, through a time-phased program of assistance di_

gned

to

l

u

cpetence

in

1highway

l a4-

'A

4nn th

Sta

l-e4-

l

4-

the State highway network with the objective of this assistanco program being to have vh StatesV.I~ ~UdUVO "t-4-_o ud..LuA

onUII 4the4rir, owneet" L.L. L u ±O _1

t

in L

the W1 it-,

future.. ±LLUU.Lc.

Th Mi-_44PV poenla IILU t,IA_L-L~L~L'

there for doing an outstanding job. xv. Despite some recognized gaps, Mlexico can boast of collecting mor3 a.du beer info±iuaton suoub the highway IieUwUri. auu Ls use thal 1110m5oorlher countries. SOP's Planning Directorate keeps a dynamic road inventory system, which is continuously fed -with field infoxiriauion and processed in a compuiue. center. Since 1960, the inventory has data on geometriccharacteristics and surface conditions of most roads from expressways to trails. In addition, the Planning Directorate conducts a number of traffic surveys each year. hUese include:

(i)

(ii)

traffic counts taken at scme 50 permanent stations and 65 toll booths and at about 1,500 non-permanent stations, from which traffic density maps by type of vehicle (cars, trucks, buses) are established for each State; surveys to measure travel time and speeds on selected highways;

(iii) origin and destination surveys which give information on traffic composition, average hauling distance, occupants per vehicle, average pay-load, types of commodities and directions of movement.

26

-

xvvi.

Often,

ho-Tzever,

-

+_he suvJsof

spe,,ed

and

des-tJnatlon

oliard

are unrelated to specific proposed invesUrient projects and, as a result, maxi. mu value is not being derived from t,e resources used. In othcr word_. the amounts of good quality d,ta being collected 4 s not matched by a proper utilizat-ion of it infl the assessaroent o'L inve_>tment pri or t4es. LIor exam^pl e. ~14.-IJ.L jJ..1 the information on traffic volumes and travel speeds together wTith highway 4.

.1.3

UL±

Ti)i0.II1

U

inv-entory data could serve as a

basis

J

JIVc

ULAII

-i

L A3J.t)

L

U!

for esuaulish,ing speed/flo-vi relati0n-

ships under varying road and traffic conditions, and thus replace the rough ass-Lum-ptions now being made about congestion costs that would be avoided by the proposed investments. xvii. The mission did not have the opportunity to sample any of the feasibility studies that have reportedly been made for road works included in the current year program. From a review-f of earlier studies prepared rnair.;1y for international financial institutionis (including the 3ank), it appears that methods of evaluating road user sav-ings not only differ depending on the instituti oq to wh-ich a project is submitted, but could be suibstantially .mproved.- The mission was informed that some progress is being made towaraia formulating computer programs for feasibility studies. It strongly recit.rmC!e-.c: that serious efforts be made to improve the qual: ty of the inputs, such as estimates of vehicle operating costs and ta-iie savings, wiith the latter deserv-' ing a particularly hard scrutiny to determine their real economric and social value in a country with large unemployment and uneven income distribution. xviii. Planning at the State level is in a fairly undeveloped state. Recently SOP has taken the initiative in drawing up for each State a list of possible extensions to the State highway networlc and ranking the projects according to their potential benefits to agriculture, mrining, industry, t,ourism, etc. T'he States have been recluested to comment on SOP's assessmentwhich is a worthwhile step towards rational highway planLing at the State level. However, much more is required and can be done; SOP should play a more active role as a teacher and setter of standards by disseminating the results of pertinent studies undertaken and inside and outside of MIexico, by circulating guidelines for the preparation of studies needed in support of the States' annual program.s. D.

Highway Design, Construction and M•aintenance

}ix. SOP's highway design standards, which take into) account present and expected traffic volumes as well as topographical conditions of the area served by the roads, are acceptable. Similarly, the ex-isting legislation fothe control of vehicle weight and dimensiors is

satisfactov.

There nare

indications, however, -that over-loading is not controlled as vigorously as it should be and may result in excessive damagre to pavements.

xx.

Contrasting laith the uindistinguished level and use analysis in highway planning, highway design w¢ork stands out technicnal qualit ye SOP's Design Directorate uses up-to-da+ve ment, including modern air photography equipment and optical I / Since the mission' s retun, assist in this process.

of economic for its excellent1 methods and eqW--` equipment for

consultants have been engaged by SOP to

photo interpretation and over 50 different computer programs. The staff using these tools are well qualified. Local consultants are employed only to a sina1. extent and then mainly for bridge design iwork. xxd. The Design Directorate produces studies for some 1,200 km of roads annually and has the capacity to produce substantially more. In view of the decline in the rate of construction of Federal highways, the question arises as to how this excess design capacity can be effectively used. One use, which at the same time improvesthe quality of design of State roads, is to arrange for the State Juntas to use SOP's equipment. For instance, all the air-photo services and the running of computer programs for State roads could. conveniently be carried out by SOP. The States would be responsible for the field wiork and would pay SOP for the services rendered to them. The Design Directorate would, in fact, operate like a consultant on a semi-commercial !Dc'- s. xxii. Highway construction in Mlexico does not present any particular problem from the contracting side. The existing construction industry is strong, well-equipped and well organized and the quality of its work is go^rerally good. Manv of the problems regarding poor work encountered in the past have been overcome, and were due more to begirning work before engineering was well advanced nnd to changes in the course of construction rather than to the inability or inexperience of contractors. Although there are still sone nn1it.inn1 ovPrlvay in cn-.trnae-t JTrf1z r_cnmpntitinn i3 keen nnd h2s cqi conr-i foreign firms from bidding for highTw%ay contracts in Mexico. xxiii. za tion

Highway maintenance is carried out by a separate maintenance organiinI

SOCP for

1

cderc

---

C' n -,nos

-by

;

for toll 1

ro ads

_=d bridges, 9

-d

by the State Juntas for state and local roads built under the "tripartita" 1,n

nicmc .45 .4XItic.,,

M..;

LtcI.lll

V~4C

-,-

o

4.

i).

Ar,,

.3

WA4

Ar

(14..

oA..,

.accessrn

(1

".

OO

4 A.Q LO V1'...

J

trnedA

4.

titS

'(44

,c,-_

An

VVVL.4.

44..

+

1 noc a] VV1C

4.4t

.L

on.-n _.,a,tt.iLI

ties served by them. On the whole, the maintenarice of Federal highwiays is good, despite SOP"'0s maintenance Directorate estimate new equipment needs at Pesos 200 million (US$'25 'il1]ioni; xxiv.

a shortaage of some items of mLI aintenance equipment. "I"-

.

UlV u UaI

.LUL±Z;U

a0±a

sL ; i± Lr,1jUs

Ul.

I

w

L.

|

Dl

UXJI

UL La

L

±Lt L U )

IUUUL L

that a good part of the present maintenance equipment is overage and needy renewal nLd that additions are required to keep up wvith the deman,ds of the expanding network and increasing traffic. xxv. Three factors influence maintenance requirements on the Federal network: (i) the low design standards of those roads which were constructemany years ago but now carry traffic above their design capacity; (ii) the poor condition of some road sectionas on whi'ch construction begaln before the final engineering was available; and (iii) an insufficient enforcement of venicle weight regulations. The effect of these is to reduce the econoix-C life of pavements and increase heavy maintenance reciuirements, thus depleti.Ig the budgetary allowance for routine maintenance. Rather than the present su._cy of meeting this problem by frequent resurfacing, it may be more economic to establish and carry out a reconstruction and betterment program for the $-6,CDO Im of sections presently affected, However, the problem of insufficient enforcement of vehicle weight regulations should be examined carefully) tne extent and type of overloading should be established and more effective r.ea.is of control devised. Not counting expenditures on resurfacing, the average

- 28 e2m enditaire npr krm nf' Fedreral highway (exc1luding drennci tin.n of equipment and overhead) is about US$1,250 equivalent and should be adequate at current pric-e lIevel-sc

mni ntfnninn

-e.v.ri.

The

equipment.

Ji-tas

q+

' --

-- .

_.

-

1

-

a 1

cif

----

_= _

from

.J.s

U

'iI

*zrg,ml;ec .Lar' Iid..1LJ..L

--CLV

ILC11,1Zx

roads average US$250-325 equivalent per kIn, which is U~_

U

*UCJ._-L.flC-.US

Their needs are even more severe than SOP's, from which they

ocWasion~ boro ~ 'JW~'A~..jJIL~k ~~~~~f). eq0.n.S C~.~J1c1.LJ LJJ. SUJA. LL.Lu

of'h;= ghway intenn

a'n shortag

"VII._U

~

+rLl>so

uAj~~LUL. U) 4SaaC~ Jil

less than adequate and

OU U

^cvii. The possibUility of eventually gi-ving the U tate Juntas ithepracticbl responsibility for both Federal and State road maintenance operations, wi-th a govervr-u-erinu coniuirbutioin for twie ruderal roads, should be investigated. Thlis may be a means of reducing some of the duplication of equipment, shops and personrnel and of improving tahe efficien cy of maintenance operations. E. Financing of Investment and Recurrent Expenditures xXvii. Betwvieen 1 965 and 1969 total expenditures on highways in flexico increased at an average yearly rate of 6.8K from Pesos 1.68 billion (US$135 million) to Pesos 2.36 billion (US"'i89 million) and were financed as follows; 1965

'1966

1967 1968 (Pesos PdllionT7

1 969

15 1,0Th.?

1,167.5

1,075.6

946.3

956.5

945.2

Internal Credit

10.7

212.6

388.1

470.9

564.8

61¾,,

Foreign Credits

264.1

185.9

280.6

185.4

238.4

326.1

Cooperation 2/

227.7

278.7

324.9

411.8

49.0o

515.3

13.1

22.2

41.6

46.8

110.8

11c.b

1,683.1

1,775.o

1,o81.5

2,071.4

2.358.2

2.60oo,1

Federal Budget

Caminos Revenues TOTAL

On average, foreign credits represented about 12', of total resources. The share of resources contributed by the States and local communities under t,e "bipartita" and "tripartital systemsincreased from 13.5E¢ in 1965 to 21.25~in 1969, reflecting a shift to-wiards more secondary and local roads. Xxix. A functional breakdown of these expenditures was not available -to the mission. and infonmation given to the Bank on previous oeaic ns doen ncr. tally with the above figures. xxx. In 1969, SOP prepared an investment program for 1970-1976 that consti hates a general framewPxork for i-ts future ann.ual programs. It hns ~no 1-,, officially agreed to by the Federal and State Governments, however. Acco:rxi'.:.g to this program., expendtures in the highway sectnor wol A be as follows: V/ Provisional 2/ Contributiorns by the States and local communities under the l"bipartita" and "tripartita" systems.

-

29

-

SOP Proposecl -i-1-9way Expenditures ()Y(U-1

y)7--

(Pesos B,illion) 1970

1971-76

1.18 0.45 0.06

7.51 3.70 0.34

8.69 4.15 0.40

1.69

11.55

13.24

0.34 0.12 0.03

3.99 1.08 2.52

4.33 1.20 2.86

Sub-total

0.83

7.75

8.58

TOTAL/

2.qO

19.33

21.83

Total-'

Federal Hi waysm' ConstructionŽ' Maintenance I4aintenance Equipment Sub-total State and Local Roads _ipartJLta Construction Haintenance Mlaintenance Equipment

XXXi.

Accord± UJ.Iin,,UV to tJis

proj-cU113,,,,

LVd

1ttl 1y 1WC:

eL1Ut

L tur±es wou',dUi ln.r;ieas-i)

at about 4.8% annually between 1070-1976 as compared with 8.8H, p.a. in tae 19G-199

period.

uonsUrUt.;U-ULQ1iUL

of Vt

d-. LLLgJayd S

LVUU.LI

leveil off

up

L,U

ly f2

and decrease sharply in 1976, while Federal highwlay maintenance would increare by 7I5o anuriaIy, The share of State and local roads in the total proposcd expenditures would rise from 32< to 51l,'a indicating a welcome shift towards such roads. Lhe question ar-Lses whether sufficient budgetary resources are likely to be available at the State and local levels, to finance a highway expenditure program Utat would more than double in size over six years. Thle mission could not investigate this separate resource problem which is clearly crucial to the success of the proposed program. If an examination by thie Government shows that the States will not have sufficient resources, the possibility of allocating part of the increase in road user charges recorln-iseby the mission for these roads should be investigated. Alternatively, the Federal Government might have to increase its share of financing in the "tripartita" and "bipartita" systems out of general budgetary funds. xxxii. While the proposed program aims in the right direction of putting still more emphasis on State and local roads, mucn more detail and information would be needed to pronounce either on the absolute size of the program or on 1/ Excluding indirect (overhead) expenses. 2/ Including toll roads. 3/ Including design and supervision. I/ Figures do not add to totals because of rounding.

- 30 the particular items composing it. Through its highway inventory and the various traffic surveys, SOP has collected much of the information necessary to prepare a highway program based on economic priorities. The mission could not ascertain, however, to what extent tids information had been used in the preparation of the above-estimated expenditure program, nor could it closely examine the criteria used in ranking the various projects included in the program. The mission's general conclusion is that the direction of investLment expenditures seems right; should there be constraints on resource allocat_ol to highway programs, a reduction in the construction program of Federal and. toll roads is unlikely to cause any severe economic strain in the movement sf goods and passengers. On a financial or cash basis the total revenues raised from all road users would, on the basis of information in the next section, more than cover the costs of the above 1970-76 program of highway expendit.'les envisaged by SOP. As that section shows, however, a substantial portion of the "road user charges" raised are not collected by the Government but reta--ied by PEMEX. If this continues then there would be pressure on the budget to finance such a program. F.

Road User Charges

xxxiii. Vehicle owners in Mexico pay (i) indirect taxes to the Federal Government on vehicles, tires and parts manufactured in the country; (ii) taxes and licence fees to the State and Municipal governments; (iii) tolls fees for the use of toll roads and bridges. I,ith the exception of toll revenues, the proceeds frcm these taxes and fees go into general budgets and are not earmarked for highway maintenance and development. There is I;o motor fuel tax in the traditional sense found in most countries. However, as explained below, part of the revenue received by Pemex, the national oil company, can be regarded as a tax or road user charge. xxxiv. Pemex pays a 12% turnover tax to the Federal Government on the value of all its sales (other th n on netro-chemica1 prodlucts for which the rate is 7.8%). The remainder of its net revenue it retains and uses to finance part of its general investment pror an. To compensate the States for an earlier direct tax on gasoline, diesel fuel and lubricants, a small part of the proceeds of the tr-rnover tax is allocat-ed to the States on the basis of Pemex's sales in the States. The total turnover tax cannot be construed as a road u-ser chage since (i) it applies to reven-ues from al Droducts sold by Pemex, including products not used in road transport (e.g. kerosene fertilizers); (ii) it contans elements o a' corpor-ate pro' It'ax; mnd (iii) it does not reflect the possible cross-subsidization among Pemex'. rmanv diverse product sales. xxxv. To deterMine +the 'true tax on sales of motor fuel the mission, with Pemex's cooperation, made estimates of the costs of producing and distributing gasoline -ad desel fuel to compare these costs -with the retail prices of these products. The results, which must be considered only es orders of mragnitude, should be conriLrmed by Permex:

- 31 US cents per gallon Gasolinet,

Liesei Fuel

Retail Price Distributors' Margin

26.8 2.5

10.3 0.9

Price at Pemex Agency Transport and Storage Production Cost

24.3 1.7 12.0

9.4 1.5 7.5

Net Income to Pemex 'Normal' profit (20% production cost)

10.6 2.4

o. 1.5

Surplus (deficit) Turnover tax (12% to Government)

8.2 3.1

(1.1) 1.2

Retained by Pemex

5.1

(0.8)2/

Exeiitli1nz Mtyn1linn2/ Turnover tax paid minus net income of Pemex fran sales.

1/

xxxvi.

The surplus of about

ealn 'hp ep nnn5-,! srlenrl

Us8.0

cents equivalent per gallon on gasDJin3

i,nv rl hon mahi

an

rod- i f' iit i

rs vf'

simprl t+npe

turnover tax is paid on retail prices, means Pemex would transfer about US3.0 cents per gallon to the Federal Treasury anrd retain ahout TU85.O cents per gallon for its o-vm use over and above a 'normal' profit. For diesel fueal

t.he sritu%nA ion iscr-i q

_n Ai fOerer.t.

Tphe, retalpice of' dioesel fulp

barely covers the total cost of production and distribution, and does not make anny adeate c which wo+ud remect ft-uton the oppor-- t---ii+ cost o f Pemex's capital. Thus while gasoline using vehicles contribute to the costJ of the road system,

diell vehicles wc.h.are

4.-...

large ----

trclcs

.

buses not only do not pay the economic cost of the damage they do to the road ovrkAtem+nV,,+ * 4 .-. 1 -l)'.lj 14).1

also 0-L4'

are

bi. ,. Wz)_.LJ1E,

s- A4,e -A

she ra, t e ,P of zbo.0 4 O.1'~4 J.6 0.L4'

0-V~LA.Ll1.A V AA.4

equivalent per gallon of diesel fuel they consume. I'l

P

~

.1

0.

VUL1.V V K.J

VC± O..A

VJ.L

W)VLLU

had a net revenue (before 'normal' i

-Op i

0

"ngt,

t^^-vii s. a

UV-v

grou

.II 1-,LiU

pi

Vl.J.L* C.

uto thle

su.fJl-usL

1 U

Etu

TTClI (en '4L~.±. '-'

)'~)

In addition, since

1...U.LVUOL L U

Drofit) of only

"v'

44 ,.

6O..J.LJL_L

0.L-S

USO.4 cents per gallon, `-es

road usersi Uhve been pa±yg mtore e

on

other

year Uach

than the annual outlays for road construction and maintenance:

recr.tly

,s

-

-32

Road User Revenues from:

1965

Sale of Gasoline Sale of Diesel Fuel Other Federal Taxes Toll Revenues

66 .4h (89) rN6J

159

tn Ys

State and lna1

~4.-

and d;se

.1.-

".1i L

Q'~ Jt.

316

EP22

2.032 (130) 656

355

_,__

1

927329

3,187

3-,6

I63

14 , 775

1,982

2,071

2,3)?

770

Ro

1 116

1 ,005

fel prices have 'been Iagl -~U'.L.

1.877 (115) 601 302

9r4

AR68

G-asolin

1.713 (los) 569 239

1969

2,36 A

plUS

1,r il

1967 1968 (Pesos llioinl

1.576 (97) 479 193 ),n3

HigTiay wRvendituresJ2 Si

1966

V~

x-l

1W-V

~ILdl. V

UZ.Ly

un

ove

-c,ange

wl'LdIir,~_U

U V

J.L

the past decade, while the average quality of fuel has improved. Hence, 1th+1 the0 cqcine sn tr+he ~... uchsn ofk _oalethe Peso, , prce +Aue ousr W.- † -e --- nn have fallen in real terms. Originally, diesel fuel prices were set at a .

10-T.ST

level

to

asslist .

I..

ccon'omirc

Ji.-VW%

U 4

1

Vh-

il1n

"developmenIat

Tlex4

.1

LJ

4

4U..

5r1,

VU 4

l4o11L -

SS- U

'44.

vL-

W

t4.

-4.1

.4

costs, i.e. by encouraging dieselization of the railways and the growth of VTe truckilng V industry.*

These aims have been largt'uely met .

TheU railways

are fully dleselized. The trucking industry has grown and, despite the forLal regulatory framework, is comLpetiti ve. Tranlsport costs do nolt appe^cr to be a general limiting factor on development, as in some countries, thoL)i. there atre somie speciflc iocal exceptions. The dission,s enquiries suggest that in Mexico truck transport costs range between 3-100 of the total del'VeL ed price of most goods, with the iuel tax element of vehicle operating costs 'Loins a small proportion (an authoritative examination of this in Mexico by the proposed Ministry of Transport would be an important research project). The evidence though tenuous (and also needing investigation by . Government) suggests that diesel trucks are not paying the econaomic costs of their use of the general highway system, even if vehicle licence fee and toll payments are taken into account. It also appears that, accordinC to Pemex, if desulfurization investments were taken into account, the trua economic cost of diesel fuel would be greater than estimated. The low J•:LC.J of diesel fuel may also be a contributory factor in some goods moving -by highway w1hich otherwise wiould move more economically by rail, and thus may have some investment distcrti(nn or m,is-timig effect.. xl. Tne mission recorrnends, therefore, that the price of diesel fuel should be raised by an amount to eliminate the present subsidy of about US1.0 cents equivalent per gallon and to provide a sufficient contribution to cover the damage caused to the roads by dilesel trucks and buses. There is no economic need, however, to tax diesel fuel used by the railway since it does not represent a user charge; subsidies should however be eliminated. i/ Rough estimate. 2/ Excludes expenditures on municiTal streets.

- 33 Xli. A user charge on trucks using Liquid Petroleum Gases (LPG) should also be imposed. At present this fuel is not taxed and is imported duty free by the private sector. Taxing the fuel may be administratively difficult because of the many sales outlets. A user charge, however, could be levied by increasing the annual licence fee on such vehicles. This is desirable (a) to ensure that LPG trucks pa for their damage to the roads, and (b) tc, discourage the use of this fuel and thereby save foreign excharngc xlii. The general gasoline tax should be maintained at least at its present real level (i.e. its price should increase in line wTith cost increases). The existing effective tax level unquestionably covers the economic costs to government of road use by gasoline vehicles and, when added to other user charges on these vehicles, pays for tlhe overall maintenance and investment in roads. Gasoline is also used bv smaller truclcs serving local needs in the rural areas, whereas diesel trucks tend to be larger and operate on long haul routes. An argument can be made, however, for increasing gasolir.etaxes in urban areas, particularly Mexico City, on +the grounds that it may assist in reducing congestion and air pollution in the city center and thus more effectively reflect the social costs of automobile use. The amount of such an urban surtax i9 limited by the speculative onnortunities of crosshauling fuel. A small additional tax of about US4.O cents equivalent per gallon for gasoline in Mpxi rity cor rid l probably hp 1ev ed without serict-z fuel searching journeys. risk of evasion or generating xliii.

in addition to the above recommended adjustments, the mission

recommends that t-he present user charge aystem shoul d be thorough1 r eV by a joint committee of Mlinistry of the Presidency, Finance,

Yrri rnrrl

Transport and

Peraex re-resent_nivs xliv. ^.ee broad o'bJectives of +V4is elnqqui~ shI"oulde + provideth basis for (a) a general road user charges policy for Mexico, within the ab'. b a rat or,al ar.d eq-'ta fi-scalo uoi cy, ar, overS Ial fr.-L.ework of ger.eral 5 allocation for the distribution of the funds raised from vehicle ownerslhip and use to the Federal, State and Municipal governments. Th4is will require as a first step, a detailed investigation to clarify the facts of the preseneconomra *.clear situation. A consideration of alternative policies, their costs and administrative feasibility will then be necessary so that a po].ij,Lr position can be taken by Governmient.

. n the mIeaL.rWm,e

!road accourl'

wi" conrAinue

so Show a sirand actual plus in that total revenues to Government and Pemex will exceed L`

planned highway expendt-ures.

Tlhe road sector -will still be itaxed ligtly

as compared with many countries, and the continued development of a healthy road transport indutur-y ` o-`U, notb -e a-fcUete.

- 34 G.

Toil Highways and Bridges

xlvi. Tne construction of- tol3 Cacilities absorbed about one-third of Federal highway expenditure in the 196 0's, when toll roads increased from 290 km to 1,036 km and the number of toll bridges rose ten-fold from two to 20. Total investment in toll facilities by the end of 1969 amounted to nearly Pesos 3.0 billion (US$240 million). The Bank participated in the financing of 18 of the facilities through two loans totalling US$62.5 million. xlvii*. The aim of all post 1910 Revolution Governments ha6 been the integration of the country by a basic primary road network. This had not been fully achieved by the mid 1950's when some existing highway sections were becoming increasingly congested. There was an economic case to improve these roads, often by a parallel new road. The Government considered it inequitable and economically undesirable however, to finance these new constructions by a general tax increase on vehicle fuels or through the general budget, wlhen some regions still lacked road communications. A new parallel road would offer clear benefits (reduced vehicle operating costs; time savings, lower accident rates and greater ccmtrort) to justify an investment decision. The idea ermerged, therefore, that it would be propcr to recover a part of these benefits (a t"cuotal is levied orny where a parallel free road exists; This concept was easily extended to bridges which may supplement an existing bridge or a ferryv service. xlviii. The first toll roads were sections of the Mexico City - Acapulco tourism route and were built and oDerated in the early 1950Ts by a commeL cial company with State participation. In 19585 an autonomous Federal agency (Caminos Federales de Ingrescs) was created and took over the comnany's assets on the grouinds that the objectives were not finnncial gains, but the generation of resources to be reinvested in new public works and servi-es. To avoid wasteful dunlicationn SOP was given the tasl of planning and building toll roads and bridges, with Caminos being responsible for their adlrd--ri +tration and maintenance. In 1963, the activi ties, of Caminos were expanded to include the oneration of ferries, the rental of heavyn construction equipment, etc., and its titne ch-nged to the preseni; Caminos y Puentes Federales de Ingresos y Servicios Conexos (Caminos). xlix.

This brief reminder is important to an understanding of Caninos

fuInctions and operat-icns as well as to an evaluaton of the res uts being

achieved. Camninos1 primary function is to administer (operate) toll roads U.- bridges by 4toll ai'd m`intaining wl f1acilltes. 's 1Jy collecUIAng uii U± U ch-arges 111LI__L i 1~LI_ dLL±1 ViA.X L £ _'-L± _L ,L f such, its performance mLust be judged primarily on the basis of efficiency and econoi,my. In the absence of a detailed study on the operations of Canmines, the accounuing results may give some insight; unfortunately, Cal:iILnos' accoiunting practices vary over time, so that accounting data may not be strictly comparable. Nievertheless, it can be said that the costs of toll collection on highwiays are reasonable by international standards, ranging from as little as 3.1% of toIl revenues on the busy Mexico-Queretarz road to 12.8% on the Cuernavaca-Amacuzac road. There are, however, two notable exceptions the Tijuana-Ensenada road and the La Pera-Cautla road where collection costs amount to 21.2% and 147.2% of toll revenues. In both cases, low traffic is a major contributing factor.

1. Despite tnis apparently satisfactory indication, there are signs of possible declining efficiency: for instance, Caminos' working expense: are increasing at a raster pace than both traffic volumes and toll revenues. VThile traffic (in numbers of vehicles stopping at toll booths) increased just less than threefold between 1963 and 1968, working expenses increased over four times fran Pesos 22 million to Pesos 91 million. One consequence was that the proportion of working expenses to toll revenues increased from 20% to 33%, despite some increases in toll rates. While, by itself, the evidence is not conclusive, it points to an area that should be of concern to Caminos' management and underlines the need for establishing standards by which to judge Caminos' efficiency. There may be a case, for instance, for closing down to'L booths at night on some roads or bridges, when toll receipts faiL to compensate the cost of mamning the toll booths. li. Another area of concern and potential savings may be the mainteiaance exenditures, which appear excessively lhigh in some instances. Unfortunate&.,T the accounting records are not of great help, as they do not clearly differontiate between routine maintenance, periodic resurfacing and capital improvements, especially in the 1969 provisional financial statements. Major expenditures must be thorouglly reviewed to ensure that the most economical. solution is being adopted. lii. In addition to its primary function of operating toll facilities, Caninos is to invest. its.not, re nne in npw nuhilic faiclities and in the However, creation of public services (e.g. roads or ferry services). Ganninos does no-t have the necensary powers tn carry out this fimction independently. On the one hand, the Direcclon de Tarifas in SCT is respo;l.qshle

+th +ll

fors fixing

ra-n+.tq

on

+he o+.her hand,l

.OP

i

in

rh

r¢on of'

olanning and constructing Federal highways, including toll roads. Thus, :-nce the decisions of both ainistries (SCT and SOn) directly irn uence Caminos capacity of earning net revenues and re-investing them, Caninos' finarinthe right. cial perfo-mance in discharging that 1.ction has to be Judged in of SCT's and SOP's decisions, as well as those of other Government branche-. liii. the

In 1967, Caminos prepared a new schedule of toll rates based on

principle

that

to.l0l

rates

sho o-1A 'dbcuf.r.

per

*ni

of

Land-rl

four-lane, etc.) irrectoll rates -wound a-Es2 I-hile the new rate struc-

for roads of comparable design standards (two-lane, pective Or iV UV ~L.

-1he VAI

~. -c4-l

CX-UaLLJ

constctlo '-U±iJL0U.LU%UL V&L 1

LAJUDV

of 4ost the rod !J.U ±I 4ll .LJCLA,

increase with the size and weight of vehicles.

VUUJ.-L

4.

-0

-

U..1

approved by 3ST in mid-1969, its application has been suspended by the highest authorlties for reasons of political opport-unity. 'v. iThe decision to levy tolls is primari-ly a political one and is based on the assumption that road users are willing to pay something over and above 'normal user charges' for the better service provided by a toll road. Since car owners in Ilexico tend to represent the upper income cross section of a Dopulation with great per capita income disparities, and since tax levels are generally light in Mexico by international standards, such a desicion a priori makes sense on 1iscl grounds. However, it also carries economic implications which may either adversely affect or improv-

-

36

-

the use of toll facilities. Recognizing these possibilities the Government is abuit to undertake a study to examine the effects of variations of toll charges on the economc use of toll higlhways and parallel free roads. lv. SOP's conclusions regarding the need for the construction or improvement of toll roads have no less an inpact than SCT's on Ca2rnos' finincial performance. Costly facilities weigh heavily on Caminosl ability to meet debt service payments and, if traffic and toll revenues are low in relation to the cost of the infrastructure, Caminos' financial position mar be jeopardized. To avoid such a si-tuation to develop in the future, there should be greater cooperation between Caminos and SOP than seems to exist at present: the proposed investment programs handed to the mission by both organizations differ significantly. These proposals have not been fully evaluated for the economic justification or in terms of their impact on Caminos' finances. Since the first tasl- of Caminos is to operate and main tain toll facilities, the main emphasis should be on ensuring that it does this efficiently at a minimum cost, rather than on the financial outcome of adding new facilities. In the final analysis, the economic return on investments rather than the test of finxancial viability should govern investmient decisions regarding new toll facilities. H.

Road Transport

lvi. Mexico has experienced a fast growth of its vehicle fleet. which increased over fivefold in the last two decades. The increase was strongest in cars which now account for over two-thirds of the totanl fleet: Cars

1950-60 1960-69

Bu ses

%

Tr-mLks

95c0

173-1

57.2

l8a5

6.1

111.3

1960

483.1 1,112.1

60.2 68.o

26.1

3.3

293.4

30.0

1.8

].94.6

1969 Annual

%

% 36.7 36.5

Total

3O2.s

&c" 6 1, -I 3

7

average gTo.*h rates 10.8% 8.7c

3.>% 1.5%

10.2% 6.o%

1eJY Ol

The ccnsiuption of gasoline in road transport also rose steadily, although at a somewhat slower pace (6.7, between 1960 ard 1969). lvrii Unfortunately, the existing ir2iiormation on thle utilization of the vehicle f-leet is incomplete, scattered and unsystermatic. For instance, a distribution of vehicles by age and capacity- does not exist. IWhnile origin and destination surveys provide a sampling of vehicle utilization, they are not designed for systwmatic treatment and no reliable estimates are avail5rle on the total ton-km or passenger-km in road transport. Litt3bif any cocrdination exists between SOP and SCT for designing and carrying out surveys. iviii. Legally, if not in practice, public road transport in Mexico is very strictly regulated. Not only does the Government control the supply of public road transport services through a system of concessions and permits, it also fixes the price to be charged for a particular service. The law empo-wers SCT, inter alia, to issue concessions and to estaLlish and

- 37 enforce tariffs. Concessions are granted for specific routes after SCT has issued a "Declaratoria de NecesidadV; indicating the need for establishing a new service or expanding that on an existing route. lix. Ehe law, however, is silent regarding guidelines to be applied by SCT in defining the routes. At nresent; there are as many as 730 trucking routes, grouped into 12 major systems which themse'lves overlap to som,le extent. Neither the 730 routes nor even the 12 maior m utes could be used as units of analysis to relate supply and demand for trucking services. Tn fact, SOT does not know how many trUckls are operating uinder each route under a Federal concession and the last "Declaratoria de Ilecesidad dates bnc-k to l9 SRince that +ime, trucis which hve legn1ly- incorporated into the Federal public road transport service have been issued emergency permit3 rather than con-cessions. Per,.i ts are normally given -for services which because of special characteristics cannot be restricted to a specific route, e.g., moving van.s, tow=1truckXs, local pck-up and dell-ery services, etc. Permits are also granted to absorb temporary pealks in transport demand. lx.

TAe increase in demand for public trucking services has been 1b-4y

largely-

itjdidamph

o

- unperate under a connst i

4Ju 4JU jonal

inJ-ct44ior

against SCT for having been denied a concession. "fAmparados t " are not restrLcted to specific routes, nor do he-y have to abide by he tariff reglations. lxi. Statistics regarding the number of concessionaires, permit holders and _mparad os" are unreliable; broadly speaking, however, there aue some 15,000 trucks operating under concessions or permits and 25,000 trucks under '"juicios de amparo". Both categories, thus, account for less than 10% of the total fleet, leaving a large number of private and State-licerlled carriers about whom little is known. As is clear from the foregoing there are many unanswered questions regarding trucking in Mexico. Serious analys-iF would require informatIon on the fleet, its characteristlcs, distribution and utilization. lxii. The last systematic study of highway trucking rates was made TL-. 1959, with only marginal changes since thlat time. It is probable, however, that current rates are below the legal tariffs. So long as the "amparados' are not subject to control, there is little the govermnent can do to enfujrie the legally--established tariffs which are little more than a point of re,e'ence in negotiations between trucking companies and their clients. lxiii.

It

is

difficult to justify the costs to the Government,

to ship-

pers and truckers, of maintaining the present system of regulation which neither really controls tariffs nor capacity. The real question, therefore, is what type of regulation, if any, is required and what measures should be taken to modify the present system so that regulation becomes a constructive force in thle transport sector. Only a thorough study can answer this question.

Mexican transport authorities agree that the present regulatory

lxiv. syse+e

mnI,A

.-,rA qnd

ch.ged-

4-be t;,at

out under the aegis of SCT. gat.huer.ing

infoLnaUiun

wlch

a

study

s

,r,

c.1-

C

A

be

4

cavr

rioA

A major part of the study would be devoted to notorios.LLLLOLy

is

Uefictin

the

tc

g

d

try. This information would permit the preparation of a diagnosis of the m,Aost important problems affecting the industry and a discussion of policy alternatives open to the Government. The study would then proceed to analyzc in detai 4 thes --_ __n -_~ _ln edetail -lese Ca_lUUI .Lati as wUe as iue legal aspeuis lIIvolvedU. I.UL' -- ---

-

end of this phase, the Government should be asked to fix the policy and Uetermine the precise wjay in wnich tne existn g regulatory system snould be altered.

IV.

PEI1EX (Petroleum Transport)

A. General i. The importance of the petroleum industry in the Mexican transport seco r canL be appreCiatDe D-w f actsfrt in 1 .. e.t of 'frm

crude petroleum and refined products in Mexico was almost 19 billion ton-kin.-

as conr-ared

'To

a

to0ta

0of

U21.5 i

L'.0L

11U[I-ho U

L

-Le± iL waL.WCY

t

second, investments in transport, storage and distribution facilities by ULe state oil company, Petroleos Mexicanos (Pemex), averaged Pesos 616 ntL1lion (US$50 million) annually in the 1965-69 period or about two-thirds of the railways' average investments in both freight arnd passerger facilli tis in the same period. Pemex is the largest single company in Latin America and is ranked about number 70 in the world. for transporting and distributing iI. Fenex is responsible inter ala petroleum and natural gas products, so as to meet the grow1ing energy requifrments of the Mexican economy, to supply rawi material inDuts to the petrochemical industry and to cover its own needs for fuel. The company's intc;nal transport policy is to seek a rational transportation system that will move oil by the most economic mode or combination of modes of transpor-t to itself. For some products, the choice among modes is Ilimited. For example, natural gas in the gaseous form can only be transported by pipeline, while residual fuel oil cannot be moved by pipeline unless the pipe is heated or the product is made less viscous by the addition of a dilutant such as kerosene. iii. With these limitations in mind, the company gives first priority to the movement of oil Droducts by pipeline and then by tanker, once certain volume conditions have been fulfilled. These modes of transport are ownsn' and controlled by Pemex itself and represent a decision to invest funds whether internally generated or externally financed. For the balance of its transport needs, approximately 36% in terms of tons originating and 241% on the basis of ton kilometers, the cempany must depend on railways ind roads although in some cases it may own or lease the vehicle fleet. If a policy can be distinguished between these two modes, it is one which aims at encouraging the use of road transport for the movement of distillate products. These products, mainly gasoline, kerosene and diesel, are shinpei over hauls of up to 400 kilometers. On a ton kilometer basis, railway cD5's are lower, but this consideration is outweighed in the view of Pemex on total dlstribution cost grounds by the flexibility, speed and dependability of road transport services. The railways, however, are used preferably fur residual fuel oil and for lona-distance hauls of butane and propane gases (LPG). 1/ ExcluEiLg about 830 million cubic feet of gas daily.

-

L4o

-

Volumes Transported by Mode - 1969

Tons

Ton-km

%

.,w) -I -Lll, )

-

Average Distance (

-

Tankers-/ Pipelines./ Railway

9,200 6,038 4,911

38.7 25.4 20.7

7,360 3,019 2,160

i5.y

800 500 440

Road

3,621

15.2

1,050

7.7

290

23,770

100.0

13,589

100.0

54.2 22.2

1/ Including crude petroleum 2/ Excluding crude petroleum

iv. The basic transport problems facing Pemex are those of distance and widely scattered points of consumption. The producing zones are distant from the area of greatest demand for final products. Broadly speaking, production of both oil and gas is concentrated along the Gulf coast of Mexico, the principal producing zones being Reynosa in the northeast, tne Poza Rica area, including the continental platform in the mid-east region, and the fields extending frormi Agua Dulce to Comalcalco in the south-east. However, drilling has just commenced offshore on the Pacific coast near Salina Cruz and a discovery in this area would have a major impact on investment decisions in transport facilities across the Isthmus of Tehuantepe^c anl, indeed, would alter the pattern of distribution of petroleum products. v. At the end of 1969, Pemex was operating six refineries lifth a total distillation capacity of 552,000 barrels daily (b/d) and cracking installations to process 152,000 barrels daily. Two of the refineries, those at Poza Rica and Reynosa, are small and their zone of irniluence is negligible. Of the four major refineries, Niinatitlan (175,000 b/d) and Madero (169,000 b/d) are located near the scarce of production on the Gulf Coast. The two remaining refineries, Atzcapotzalco (90,000 b/d) and Salamanca (75.00o b/d) are located inland near the major centers of consumption, i.e., MIexico City, Guadalajara, etc. B.

Petroleum Transport Facilities

v.. The location of both production and of the four major refineries has determinnr1 ,..^ gr^-t. nt.^nt. fh^ pnreen+. nt.t.patrn nf trqn.-nnr'at,itn ai,'. distribution. Writh the exception of crude shipments by tanker out of Minatitlan toMaderor all crude moves to the refineries by pipeline. Natural gas is transported exclusively by pipelines from the major producing fields which are the originating points for the northern and southerr gas systems. Refined products mo've from the four refineries by pipeline, tanker, tank _ L

t-.lJ.

±nd -ail L-1.X

O

carAn.toJ

A---

the 60J

__

__

or. )so sales

r-Ar

ageci

_

+--EtJ

_ __

_

__

the

These movements may be either direct or via transshipment points such, as the ports on the- L.T--f coast-or pipelir.e 4er-4 -- -LS =i-4 c-' Paclfic coast ports for the transshipment of oil products are Salina Cruz for outwa.rd uargoes and -I'zatlan, Guaymias andURosito fUo iL).nw1VdU cargoes. country.

vii. rE the end of 1.969, excluding the Minatitlan-Salina Cruz liquid ammonia npnelinee a total of 2,9116 kilomCeters of products lines were in operation. Total capacity was rated at 151,500 b/d of which 38% iwas being utilized.

Some lines such as

he

pipeline and the,

line to Salina Cruz have been running at 100% capacity. Consequently ass a result.l- of bottlenecks, ne-w traf4i c has been shCLiCf+g 4to other moldes of transport in recent raonths. The areas of demand which are facing suply problems ccmprise Mexico City and t.he norher.-ac' 3ic Coast. To meet e.xVro ~~ ~ ~ ~ ~ ~ ~ ~ ~~± ~ ~ c1 ~LJ pected increases in demand Pemex proposes to add hl,800 b/d capacity bo existing lines by inst+a"ing additional pumps and to construct some 212,000 b/cl of new capacity within the next decade. I)

UL1

X

_L.L

1~

*I

J

I

viii. The natural gas line network in Mexico cerprise two separate systems; the Re1ynosa-'nhihuahcua lLne in tlhe north and the Cd. Pemex Mexico City - Guadalajara line in the south. The total length of the network amounts to over 3,82, kiloreters with an operating capacity of over 1.1 billion cubic feet per day. Both systems are now operating at over &C5 capaci ry. In view of the grow,ing demand for natural gas, the construction of a parallel line to Mexico City has commenced and is scheduled for collpletion by 1972. In addition, the northern system is being strengthened in capacity by the addition of new compressor stations. The total volurne of gas moved by pipeline has been rising at an annual average rate of 9.6p reflecting the growth of energy demand and the substitution of residual fuel oil in the areas served by natural gas lines. The impact of gas oI1 other modes of transport has been indirect; it has slowed the growth of fuel oil and shifted demand to regjnns not supplied by gas. ix. Pemex's tanker fleet aggregated a total of about 350,000 dead.weight tons (dwt) at the end of 1969 and averaged 6.03 years in age. The period 1961,-69 saw almost the complete renewal of the fleet, with the purchase of 17 new tankers, including specialized ships for ammonia, aromatics and ethylene. Prior to the acquisitions, the fleet had been

allowied to deteriorate and become obsolescent. Total tonnage owned by Pemex now represents over 50% of the ships under MIexican flag. The rene'.al of the takcer fleet had several important effects. Repairs and maintenanice costs were reduced drastically from Pesos 76 rmillion in 1966 to Pesos 19 million in 1968. Moreover the fleet commenced to earn foreign exchange on export freights which amounted to Pesos 25 million in 1968 and Pesos 12 million last year. This utilization of Pemex tankers for export shipmen+s is regarded as a utilization of temporary excess capacity. x. Port conditions do not allow the use of tankers over 20,000 dwt and, indeed, place a severe limitation on the full utilization of the carrying capacity of the present Pemex fleet. Because of draft limitations, tankers loading at Gulf ports cannot carry more than 110 to 120,000 barrels as compared with their maximum capacity of approximately 150,000 barrels. On the Pacific Coast there are limitations of a different type on the optimum use of the tanker fleet. The limiting factor is not port faciliti s but storage capacity available at the different loading and unloading point. Only Guaymas and Rosarito on the Pacific can accommodate fully loaded tankers. Other ports, in particular Mazatlan,. in terms of their areas of influenee, could well take full cargo shipments if storage were made available.

In addition to pipelines and tankers Pemex makes extensive use of ne+wTor aTanda4W the road s t c104 o t 3862 A1, rail tank cars with an a-verage ca-pacity of 9,698 gallons. Of the cars xi.

the railway

operated~ ~ er~~~ rdbynm

U.S. railroads.

soil-rces

~-x

-an< 1d +-he b

1 ance

1leasedA

-from1Merx-icr.- -and

A basic problem facing Pemex is whether to tie up its re-

iin rlw11.ayr 'Yt-,

-

cars -hether O4 ~C" or V.L. ~ 1

to I-ae VVL J -L~d-

Jt

them. UJ.1III~.

rOnce 44t J~ has 1b-u^4 ULLA' ,- .u I L uv.4ulu "J

new tank cars, Pemex has limited its flexibility in the use of alternative transport modes. The national interest4 d prudent b requires that some tank cars be owned in Mexico. In other words, the issue s not all leasing or all owvnership. the railways, ho-se-ver, are -understandably reluctant to invest heavily in tank-cars without any guarantee of trraffic from Pem ex. The misbion cannot recom-u- iend a uinque solution to huls problem. It can only arrive out of discussions between the railways and Pm1aLs to LU whIa raI'cUlC guarantees and for what period can be gLven Dy Pemex and the assurances of service and contractual freight rates than can be given by thMe railways. me mission would reconmend, however, that as some of the older tank cars now owned in Mexico reach retirement age they should be renlaced by leased 20,000 gallon cars which wzould offer unit savings to both the railways and Pemex. xii. Railway transportation is used by Pemex for LPG and heavy fuel oil and, to a lesser extent, for distillate products. Tank trucks, however, carry the greater part of distillate traffic not moved by pipelines and tankers. Pemex does not own any inter-city tank trucks, but enters into contractual arrangements with private truckers. An analysis of oil products traffic by rail and road in Mexico suggests that the road fleet is more efficient in the sense o2 greater flexibility, higher speed and more capacity per unit per year. The railways experience serious seasonal problems in some areas when they must give priority to moving agricultural goods over petroleum products. In addition, since the railways do not have sufficient tank-cars and time is required to lease additional cars, use of trucks is resorted to to meet sudden peak demands. MIoreover, at many points, either demand or storage is inadequate to sustain efficient railway operations. Under these conditions, the choice of placing more emphasis on road traffic for those products which are not captive to the railroads appears to be reasonable as a short term solution in terms of real costs to Pemex vis-a-vis disbursements for railway services. C.

Traffic Trends

xiii. In the past few years. total ener2v demand has been growing at i: somewhat higher rate than the gross national product. Rising rates of growth in the SdP - and in industrial nrnclititon - are often acrompnnied by sharper upturns in the consumption of energy. In Mexico, GNP increased by nearly 7% p.a. over the nast five years and enArvAde-mand hy ahout 8.0% p.a. Current estimates are that GNP w^ill grow at 6.0%a p.a. during the period 1970-7q. Tho missinn believes that future energr demnd will nntinue to increase at a samewhat higher rate, perhaps 6.7% p.a. lwith liquid products growing slower and natinal gas faster.

xav. Miucn of tne outiook depends on adstillate proaucts and LPG. Tne distillates market responds to the demand for fuel to be consumed by all forms of transport. The requirements of the transport sector averaged 220,000 b/d in 1969 or the equivalent of an average growth rate of 9% p.a. from 1965. In geographic terms, distillate demand on the Pacific might increase to about 78,000 b/d by 1976, far in excess of the present pipeline capacity to the WAJest Coast. Mexico City requirements are estimated at 116,000 b/d by 1976, which could not be supplied with existing refinery or pipeline facilities. xv. Pipelines affect all other modes of transport. During 1969, as earlier indicated, most products lines were operating at between 90% - 100% capacity. It is evident that the products line system is becoming a bottleneck because of the absence of spare capacity and delays in the constructicn of new lines. These lags in pipeline capacity are now showing up as above average increases in the use of other modes, notably road and rail. Pet:.oleuiri traffic on the highways and railways reflected this situation in 196;1. The railways alone registered an increase of 7% in oil movements as compared to 1968. The investment strategy, as developed by Pemex to cope awith rising eneray requirements and changing geographical patterns, envisages that pipeline traffic should increase by over 12% p.a. up to 197O6 Xvi. The future rate of growth of maritime traffic depends on a num.ber of factors, among them (a) cmnpletion of a Droducts pipeline from Salamanca rla Guadalajara to a point on the Pacific, probably Mazatlan; (b) an additional line across the Ltsthmus of Tehuantepec- (c) a system of products lines in the Pacific Northwest, either by extending the proposed

(fliiacan .and Tns Mocnhi_s or by constructing a number

line to Mazatlan to

of small pipelines from Guaymas, Topolobampo and Rosarito; (d) possibilitY of a new oilfield om the Pacinfic; and (e) inorpqsel production fro-m the t;ff-. shore fields opposite Poza Rica. xvii. In view of the proposed pipeline program, railway traffic of netroIum n products shouIld increase at a slower rate thnn overall demand. How much will be transported by the railways, however, wlll depend in pa:t on the rates and type of ser ice the railways are preparedr tn nrrrnide. Alternative modes to the railway for residual fuel oil transport are limi ted, but no such problem exists vasolin, for keos ne - Ai The question that needs answering is what measures must the railways takto offset co.mpet + or. frem +the hig-hways. T'.r sw '. r be c ven H;, a joint exploration by the railways and Pemex wh1ereby the railway can pr>irrn V.WAL

Taha+nv. --

JJ-±

-~J. ~t4--~n

4rnhinl

,+ .

"L .JALLS..C

+-.r,4 QIW.LJfl

'.i

no

C.4.lO

n-nrwn MV±CICN

nn

ohi

-

-

A -.

lic a

Qfl

---

-..

fl(

gallon tank cars and Pemex can more accurately indicate its railway tranport needs, perhaps on a contractu '- ba's-ls. XVLii

*

aJIt1

U

.11

Witz: vu.;

UDlIIlt7 Uli D_

±±LUV

P.ldVULUUiD luiUV ' ii

Liy.

has been remarkable. Traffic rose by 14.6,' p.a. in the period 1966-69 to reach 3.6 millio tons. .raflic lLows, however, are less identifiable because of data deficiencies. However, approximately 40% of road traffiz originates at refineries and the balance at pipeulie terminUls an,d imulpor, points on the Pacific coast. The outlook for the future is for continued strong growtn with rates of increase below the recent historical trendU

the light of the projected pipeline construction program.

1:

D.

Past and Future Inves-tents

xix. five vears

Petroleum transport sector investment in M*lexico during the past n,olinted

to Pesosn

'A1

billion or-vv ap

ror+,

Kr 15E

Pemex investments in all activities, including new wells. vestments in

39.3%, 33.6 o

.

the 1965IQ-6

tankers 25.l1, tA +.l-

and rl

priyo-

g JSA

.

-1 .

4-

9-i

Transport in-

as,.1 follow:

+

pipelines

storage and distribution facilities, including portt+ru i

D v -' ;

wrJ -ere

of to-.nl

-

ne

6

A._.;

Cks C2 I

7.

7

4.

tJCU4J±A L

JU± -LVLL

±7 I .

- j

>v,

n

- - --

i

II--A

- PI

*JHU U

IA)

I

i

IV

) U

double its capital in,estments in pipelines to reach a total of Pesos 2.17 billlion. Pemex nowJ -eo,^ie tha 4rdct,tplnep-oev4hve som -mex no,j ~,P±LJ.LLI- p±u unduly delayed because of the investment priorities given to other activitdie' su^ aspeto-h-1-cas es atenton howe-ver, seems Lo have been at.au L4('T in tlhe allocation of available funds between the several modes of transport-,', for example, VUp±1e±±L1 pvUJUUcU L1n LAWe 110'lonwes wIch wJould hielp mize transportation costs to the region. 3

1U±.

,uIlict

ouii±u

!diUUUUU'

VjtVUUUZ-

IidavU

.o

U'Z

___1ZL__

Transport Sector Investrments (P~esos i4riiiions

Pipelines Tankers Storage and Distribution Ports Tank trucks Total

ly65-oy

1971-75

1,211 772 1,035 n.a. 62

2,169 8Li6 343 125 64

3,080

3, 57

(US$285 million) xxi. Three major products pipelines have been approved for construction or, are under active consideration, as follows: Tuxpan - Poza Rica - Mexico City Salamanca - Guadalajara - Pacific Coast Minatitlan - Salina Cruz xxii. Tuxpan-Poza Rica - TMexico City. The proposed products pipelinie would relieve the supply problem in i4exico City by permitting the shipment of gasoline, kerosene and diesel frcm IIadero and Hinatitlan by sea to Tuxa;)n and then by pipeline to Mexico City. The step is admittedly a temporary one, designed to covTer increases in local consumption, until the new 150,000 b/d refinery for Mexico City is placed on streat in late 1975 or 1976, Once the new refinery goes on stream, the pipelirm would be utilized for imported LPG (butane and propane).

- 45 S'manca-Guad iia _a ala

-

-Paci C-1' Coast.

Hcgh prio rty i

given

hr

Pemex to a pipeline from Salamianca via Guadalajara and Tepic to a point on

t+he Pacific,

probably ne-

MazatrWn.

'P-

ent-r- DP-1;

Coast of Mecv-5

is

dependent on the present trans-isthmus pipeline and Minititlan refinery fflor its supplies of light; pro4ucss. An alteernaive route is f t to be desirable on security grounds to supplement supplies from Salina Cruz and on economrc grounds to reduce tanker deliver-y costs by elndna ing Mazatla as a port of call for light products. Within this context, the decision represents a M-inimu^wm cost approach for rmoving addilional quantitLes of products to the Pacific Coast. xxiv. Minatitlan-Salina Cruz. The Minatitlan-Salina Cruz corridor (250 ki) is of par ticuJ-r importiance to the movement of liglt, heavy and specialized products from the refinery center at Minatitlan and petrocherical pilants to the Pacific Coast.

The corridor is

a communications

lifeline as far as the oil industry is concerned and is the means whereby Pemex:s largest and most complex refinery, M4inatitlan on the east coast,, extends its zone of influence along the entire west coast of Hlexico. Tra:nsisthmus transport facilitles are varied but are inadequate in the light; of present and future requirements. The pipeline to Salina Cruz is limited to an optimum 40,000 b/d whereas demand already exceeds a capacity that can be increased only under increasing cost conditions. xxv. To solve the trans-isthmLus transport situation over the medium term, and excluding any major discovery of oil on the west coast, Pemex proposes Etn imaginative alternative. It would use the present 10-inch line for fluel oil and construct a new 14-incll pipeline for refined product-.

The project involves blending fuel oil with kerosene on a 65 to 35% basis to reduce the viscosity of fuel and permit its movement by pipeline. Separation would take place at tle pipeline terminal by a simple distillation process. The project is in the nature of an innovation since, to the best of the mission's knowledge, there are no trunk pipelines for fuel oil operating elsewhere. xxvi, The mission believes that if both the railways and Pemex made a concerted effort to increase the capacity of railway traffic in the corridor from 8i,000 b/d to 12,000 b/d and eventually to 16,000 b/d, or the equivalent to 2,160 tons/day, it would be posslble to delay this fuel oil pipeline project to about 1976. The measures involved would require the leasing of 20,000 gallon tank cars on the part of Pemex and the organi.ation of block trains by the railways. Such an arrangement would, not only give higher capacity but also produce lower unit transport costs. Concurrently, the problem of the rate structure taking into account the marginal costs should be studied by both managements. Additionsl storage and other terminal facilities would be required and involve both Pemex and the railways in some new investments.

xxvii. In addition to the above ninelnine nroAiettR there are a niimber of projects some of which, in the judgment of the mission, might also be unde-taken in Pemex's next planning period. These are -rorectS not+ied trefineries but to shipping ports on the west coast, notably Rosarito, Guavmas anld Topolobnmpo.

They could represent a si anifican-.t cost-s rn g

-

46 -

for Pemex in vieiz of the growini remiirements for distillat.es in the- area In terms of the costs by alternative modes of transport they would have a navbav k peri od of betp+wen.Pr 18 n n-nrd t-years. For financial reasons however, they were not included in the draft investment budget for the period 971-75 Specific econ..m-ic end finn1 feasibility studies should be underta-ken to confirm this impression and to r_t_._ nJ +.he1 opt; !m -nfor -1--t-ent

tanker fleet could adequately cover needs through to 1975 if the pipeline and port improvement programs go aiead. The latter, h-owever, are not entirely under the control and direction of Pemex. Tentative plans have

been mande for th -I purchase ofLSI.A siIx ne-U 2,k'C0

Lton

UCUIkersZ

overL

Wthepro

1970-75 to replace an equivalent number of older ships. In Mexico, 15 wr~Cn1 ~4A 3 dL 4.1 p_ _l s1_ _ -_ 1 _2.n _I | Ub1±AI_LkeL n _ __2 111 UQJ11Ub U i Q i-ULUt00U Wilt:A Ubkj.U.L J1.L±C 0. a tocLiILfu iy

trade. Replacement of the older vessels wrould add about five million tons per year in effective carrying capacity. It iS recommr-i-nrUled that Ule replacement of old tankers be stretched out and not acce:Lerated as proposed in the in-vestment, program. The reasons for this is that demand is likely

to rise more slowly; the pipelines projects qill reduce some of the urgenc),; impJrVements U inthe cheuduluuAing anu maintenance procedures oL ute Lleet mIay

prove easier than anticipated; and a dredging and port betterment program will take a shorter timue to be executed than forecastu

E.

Transport Policy and Coordination

xXd.xi The problem of the transport of occupied a great deal of attention within ficant proportion of its scarce resources vestment budget in the past five years --

oil products inevitably has Pemex. It has allocated a signi-- approxlmately 15%, of the intowards renewing and expanding

its transport facilities. Marked progress has been made in the planning and administration of operations. More importance is being attached to

future long-term planning, with a planning period of 10 years being though:-; more suited for the development of petroleum resources than the six-year Presidential span currently being used. XXXO

Transport operations and planning in Pemex, however, are widely

scattered through different departments. The major groups intervening in investment decisions and operations which affect the transport and distri:bution of petroleum and natural gas are the following: Crude Pipelines and Natural Gaslines:

Primary Production Directorate

Products Pipelines:

Industrial Production Directorate

Tankers, Road and Rail:

Commercial Directorate

Under this system of responsibility, the first Directorate deals with modes of transport connected directly to producing fields and the second Directorate with pipelines connected to the output fmrom refineries. All other modes of transport: tankers. tank trucks and tarill cars. are handled by the Commercial Directorate which is also responsible for the final stages of distribution.

- 47.xxxi. No one group, in the institutional sense, has an overall transport view or is charged with the formulation of plans and the coordination of transport decisions. The possibility of transferring the management of products pipelines and natural gaslines to the Commercial Direc-torate has been discussed within Pemex, but no changes have been decided upon during the present Administration. The mission found during its visit that th.ere was no grcmp at the working level familiar with all aspects of the transport function. Pemex collects a wealth of statistics on transportation, but the information is dispersed throughout the agency and is often not fully utilized in decision making. For example, Pemex receives all the basic ingredients for origin and destination statistics for rail and road shipments, but does not process them Transnort Cost accounting systems also need to be improved. xxxii. In the light of the above discussions, the mission recommen&s that. a permanent trasmnnort nolicy planning comm.ittee shoulld be set up wi thinr Pemex with the object of: (a)

forecasting medium and long-run energy demand and requirements for transport services, both on a national Wnd regional basis;

(b)

centralizing and using the statistical information flowing in.to h+e as a resU't of its transpoort activities; -cmpay

n- JSUL.

LI.L± e

JI..L-JU

U±U

.

LI.

.vCtuIk..

4 1-L VL i-

(c)

recomine.snding

(d)

coordinating transport decisions, including the planning of long-run investments.

4trar,sport- po.licies-

for th

o,pry

d

h8

-

V. A.

-

PORTS

General

i. Seaborne international trade was not a significant factor in the d1velopment. of the Mpyi4einneConomv in t.he t0 yenrs or SO after t.he 1910 R,evolution. Today, although there are 36 ports of varying size and import.ilonrt

nnfce

±..Iih

oInm

(iiltf nndr

l.OY m o-

Pnnific

G

t

the -cr!nrnm-r is

st1ll

not largely dependent on such trade. In recent years, for exasple, twiotlhird.c: of' +.th A (ll;on nroximat.ly +,c r r'f' imrn -r+. hanve comn across the land border with the U.S.A. to-thirds of the approximately tmhile a.-

C

~f-mrrlIl 1 rvp - -

+-i tors

^- f --

?~ Vc p.a4.

rt^ E'

such as sulphur, minerals, of +1he +o+ '). CJ.

-S.

"VJ CC1L I

*

-

L

+.iny t'--

n--

1

1..ri

rnl , CJ.'

-e.^,,-Ae

i ' ,eit 1 I 4

5.

go

d

grains, cotton, oil and petroleum products (30%5

h,s a res 't, 4 4 he L )LA-L Jil

hw k7 n hUWV L-a tfl--s

U,

VLC,.J

--ccoULU

C.1S1.A.)

r less th,,

LIJJ

_LZ-0

E!N

-C CLL-L -11

1.J

)S/J1

WL~4U4

----JV1IU1ikALv.L $sA4 46-

export earnings and 25% of export earning,; from all sources. ii. Ur-aue.

In tonnage terms, the ports are more important for domestic coastal 1L

Is

U.VdLa

whcIU-ll

,n

yeui

1erIlij

iai

al.bo

beeur UCuLi

L2."U

a

LILL L.IIIUll

tons p.a. -- 95% of vhich is oil or petroleum product movements - accounts -for . 5L)iO U.L

Coll

port, tonUnages.

`:J.e

'Lua-e

fu Ul.Os

1±r ad

'is .e

bJund up 1i-Lui.

the developrment of Pemex, the national oil company, and is discussed in the separatWe chIIapter onL thatCUUO![JU1A,y-. lii. A number of forces are leading the Government to recognize tuat ports will have a more important role in the country' s future development. Airong these are continuing popRultimr presr&'- anc tne need for dispersal frcm the central plateau; the limited scope for further import substitution and a need to find export outlets for n-enufactured goods; the opportunities of increasing agricultaral exports; the need to expand fishing both for home ccnsumption and exports; the p,ossibilities of being a land bridge for container traffic between the mica and southwest U.S.A. and Japan and between Europe and East Asia generally. As a result, the Govern-ment is concerned that the ports are efficient and investments in them wellchosen. iv. Far reaching changes, in the mission's views, are required if the ports are to play their role in the Government's broader development objectives. The following paragraphs briefly describe the present scene as a foundation for its rec=mnendations. B. Policy and Organizaticn v. At present, responsibility for the dcvelopment and operations of the ports (excluding five "Free Ports") rests primarily with the Navy Ministry. There is no clear policy statement, how7ever, as to objectives in the port sector. Existing generalizations, such as "integrating the ports into an efficient national transport systemn1. are insufficient guide; to the Navy ITinister or the Government whereby progress towards the achievement of objectives can be measured, They also avoid a v-ariety of important; issues on which clear policy positions are required fran the Government. Among these are (a) whether a primarily militaryv-oriented and senior-staffed

- 49

-

organizat on is the most ef2icient body to have the responsibility 'or commercial port development and operations; (o) whether the ports should aim at self-financing -- as, in theory, the railways, airlines, airports and toll roads are supposed to -- or whether they continue as another Government Department dependent on the vagaries of the Federal Budget - as they are now; (c) whether the IIinistry of Communications ald Transport is an appropriate authority to determine the charges for many port services -as it does now -- and whether it uses its 'powers effectively to achieve nati-onal economic objectives, including a coordinated transport system; (d) whether port investments are to pass the test of economic criteria or vague assessments of "the national interest"; (e) whether operations in the ports should be under one controlling authority rather than the present widespread division of responsibilities (including si-gnificant activities being in the hands of workers' syndicates). Mo rigorous analysis of the costs and benefits of such present policies as compared with alternatives seems to have been made

Vin

Withirn +the Nyr Ministry there is an organizational stucture

which could be a basis of port planning. 'it is not effective, hoijever, hecmise (a) it lackls or does not exercise sullficient control to eeZect coordinated planning with the numerous other agencies interested in port activities and ooerations ( ) apparent linited mo+ivation to carrv O+t the study and planning functions which the law allows -- which, to date, mnay reflect ialv the low poli+; cal prioty r T'Agie +,eto+hrn +h E+.he no-cmercK__ _v 1>Ed; J6|vand vzV -- wa as f non-commercial experience of many of the professional staf^' involved; and (c)'1 an alra.nwl i,hJn w -h-lch econ-i nnnc approach to carmer-i.1 port development is given low priority. an

-_

C. vii.

Port Facilities and Operations In general, marine installations such as wharves, breakwaters,

oll4 ex-LUdn.a1

and.I ot iear piers

develop by 1976. cussedl lielow

are

AdUe-uate

for

uie

LIdL,L

-W-.h

Some investments are required in the ports.

iIdY

reasonaby

These are dis-

(pajJl.-a. AV±±j.

vliii * -edgir LJCi seem Ces cIaracd' by alac'V of LinaLio between the Ministry's Department of Dredging, which is responsible for udreding chanels and alongside quays, ancd its Dupartment of Maritime Works which, inter alia, is responsible for ccnstructing quays. It also seems uuat uredging activity is based more on quasi-political decisions in tue 4Iinistry than on assessed traffic priority needs.

ix. Routine maintenance activities in the ports seem to be unsystematically carried out, and are below the standards Mexico achieves elsewhere in the transport sector. This, again, is a reflection of limited funds as a result of (a) the past low priority of ports; (b) the diversion of portgenerated revenues to other government uses; and (c) the submission of inadequately planned and justified maintenance program requests.

x. The cargo-handling position is mixed. Acceptable loacing rates are obtained for bulk minerals, oil and petroleuml products and grain, where this is handled from silos. An excessive niumber of rail wagons, howqever, are used as warehouses in those ports where, lack of silos or storage space for other commodities exists. CONASU?OIs 1/responsibilities are, to some extent, being asswued by the railwavs which, at the sarie time, hiave to rent freight cars on a "per diem"I basis from U.S. and Canadian railroads and use foreim exchanie Geanernl crA-haMnclin, which ennn ho emc-htad to, increase if Government's export strategy succeeds, is often below efficient standards. Thsii arPti v-i y-,ris in th-e h1n-it-l1 of' wTrkars' -v-nrslYi nor conopnratives iinrltr concessions granted by the Navy NIinistry. The rates charged are determined Yi.

by t-h,e M n-istNryv of'- Cmmnn1

Tr-n--o-t'-s

ct-'r-n

rarif?

Depa.ri±.

and

-- nr1

to follo-wi the two-year movements in tl-ie national minimcuvi wage, and are unsyndicates' gangs by representatives of the Government or shipping agents or eve-n the,C ~ -J--,-Q; 4d-- A -- sar--ebelow~~VV -what4 ~~~~ ~ tts thlIem.s ~ ~elv es. ~~ . -fecec-4- -- st should be possi!,e because of the limited ariount of equipment available to the s-ndi cates.. It is also affected by a general shrt-age of warehouses which leads to transit sheds and other areas within the ports being cluttered with cargo that prevents easy mrovements. A recent reduction to 1, days ln the "free time"' allowed to goods has brought some iprovements and a substanti l increase ln reven-ues fr warehousing. 'u,-ther reductions are possible, but these should be phased and accomrpanied by the provision of more w2arehouses so as to give the b-usinEsu cuf,i-ity e-the opportunity to readjust both their attitudes to the ports and their oin ways of doing business. At he saiie timie, cusitomS proced-uLres neeu a 'ull exwul-aion to facilitate a speed up of goods processing. '~~

D.

V

V

J...

-L-Ui1,

0

UO.ULIUd4

tA

04 Cl0

V

-L

1

Finances

xii. Excluding the Free Ports, the liexican ports are not financially autonomous nor are their accounts kept on a ccmimercial basis. Port user charges, i.e. revenues on ships such as tonnage dues, dockage, mooring, wharfage, are regarded as federal taxes and paid to the rUnistry of Finance. The current scale has been in force since 1966, despite the cost increases that have takden place since then. The Wavy Ministry's recurrent and capital expenditures on the ports are determined as part of the norm-al government budget. There are no Balance Sheets or valuations of net fixed assets in use for any of the ports. The total volume of investment in the five years 1965-69 is unclear. Navy 11inistry figures indicate Pesos 484 million (US$39 million) while Iinistry of the Presidency figures show Pesos 786 million (US$63 million). The difference is partly accountable for debt servicing payments by the Federal Government on loans, whereas items are charged at "cost" by the Hinistry. 1/ Compani[alacional de Subsistencia Popular, wh-ich is responsible armng other things for the distribution of subsidized foodstuffs and the export of grains. 2/ They finance equiDment purchases out of a 10°' surcharge allowed for this purpose on some handling charges.

- 51 Tr, 1

-. V 1 i

O°C

-ng and cargo handling JnvolTed) T

less --

--

wrenre e about+ Pes

Pescos 8 million

an,ounts sp-ent on

(ecnv•irn

nprt" rru

Aedgin

the proceeds of

receiptsP fr^m pilotage

(Tj's:.'2

1o m3I llionr

steveinr-

.rhich accrue to the syndicates xnillion)

and wenre mnroinn.lyr

than total expenses, largely because of the large ==

s

e-

-. w

^In ic a,

prob h

i more proprly ch-^ge

able to capital dredging. A recasting of the accounts of the ports to a convsntional comIercial basis uas not possible in view of data and other limitations. This would require a major enquiry by government, including the

possibJ'Le use ofj cons,Lutants. JiLv.

A

case

fU±* lcUeai

LLpoLr Lu1sr c:rgow

V

dUU-U ;UU.L-

Lbe

made

--

they are low both absolutely and relatively to many other ports in the Gulf/ aaribbean area; they have only a slight relationship to the cosus lncurred in providing services; there are numerous and questionable exceptions, includhuuld bue UreU. uteu (ng services provided for the Government which, at least, to revenues (e.g. mail is exempt from wharfage -- it is also carried free on Apart from some selective increases the railways); and costs are increasing. in warehouse rents, however, where new and improved service is provided, the mission recommends a review of the present structure and level. E.

Future Traffic and Investment Stratery

xv. Extrapolation of the past trends -- 10:_; p.a. between 1960-68 -- is an inadequate basis for future port planning and especially because of the A sound analysis of predominant influence of pe-troleum product tonnages. fliture export traffic, port by port and commodity by commodity, based on studies of domestic production and marketing opportunities has not apparently Nor does a full evaluation of tie implication of PEflvJEX's pipeline been done. acquisition program for domestic coastal traffic through the ports and tanker seem to have been carried out by the Navy 1linistry. As a result, it appears probable that those responsible for port development have a less than adequate view of what investments are required and where and when. The task of improving forecasts rmust be given priority. Since xvi. some excess capacity in the port system exists and since operations may be improved, there is time -while these operational and other improvements a:^e being undertaken for the work of traffic forecasting to be properly planned, staffed and undertaken. Therefore, the Governrment should only undertake major fixed investments such as new ports or additional piers, wharves or breakwaters, after full economic and engineering studies have been satisfactorily carried out. As an irrmediate investment strategy, the best approach would seem xvii. tf be a) concentrate on handling and associated equipment which, if necessary, could be transferred elsewhere; b) provide more warehouse capacity where there nndl c) iinnirt.akP selective dredgine and nort s now nn obhvi m.- Phcnrt_aes remodelling works. A broad 5-7 year program covering b) and c) above, tois ounit.linedc for the . ork in-n1vr, gether with a description of som.e of the seven main ports in the detailed section on Ports (Vol. III). A first tot+ 1 Co: iS Pesos 350 m-ilion (TMi!JL millirnm) +proxim.-t+ion The timp phasing or foreign ex;change component cannot be determined at this stage.

Nevertheless, eqsaipment,

together wzith other port associated investments (e.g. dredging

.av

.

zids,

ec _ U-.

/

i'

co

LU

)'dill

kJU1

L.Ji

o£ U±i

a

gL&

suitable for foreigi financing support. 'To generate a project of interest to an international ler.inr institution w*ould, of course, req-uire miore detailed work a special project preparation mission and some initiative by Government of a new approach towards port policy an-d problem,1s. 'Lecorr-ienerda-tiulls

F. * xvill.

*

,IIu * uL Ii.

...

..

Given that export expansion is

an important element in

national

economic policy) tihat efficiency and economic criteria are to be increasingly dominant issues in the Government's attitude to ports; and that other than for liquid bulk cargo there is surplus capacity for the present pattern of traffic in each port, the following recomnendations should be considered: (i)

(ii)

A National -Ports Council should be created. The President of this Council. would be the I4inister of the strengthened i4nistry of Transport, as recormnended elsewhere. The Council would be composed of senior representatives of the various Ti nistries involved in port matters (Pinance, Agriculture, Cormerce and Industrry, Public I1brks, Patrimony, Fomento). Its broad tasks wjhich are set out more fully in tlhe detailed report should be to determine port policy, subject to Presideintial approval; to develop, coordinate, approve and supervise programs to achieve the policy objectives; to review,budgets of the ports; to approve the selection of advisory cormittees both to the Council itself and to particular ports. A professional Director should be appointed as the Council's chief executive with the staff, authority and clear responsibility for generating investment programs, budgets and controlling all port operations. In -the first instance, the ports should be operated as a system on a commercial basis. Later, st-eps could be taken to consider whether particular ports should be financially viable in their onM right, including the re-investment of financial suroluses ancl/or with borro,w=ng nowers- etc= An important step in tnis process weould be to limit the Customs to tLheir hasir. T iitninrin nndr to rn,nfer cnnfrnl over the transit sheds and warehouses to the Genera-l ,eanagers in the ports.-nr The (iuncil would also be responsible for revie-wing and recommnending port user charges to the !Tinistry of Tran.sport. These are no low end corl il r be increased a-nd generate substantial revenues which wJould fin

(iii)I

cn

A .m.o

an investment progam. stin

IJCt J~.A~S: 5

eeor

~.J~

sho

be4-

*1au

.', u

t) O J to1gth 4'd

..Li±5

ull:u 42de

"_O

available talent -- engineers, economists, financial ^alysts, ec4-. Jnto t'he svaff of 4the Ports Co---41 ard

the ports as General Mlanagers and Depaartment Heads. efforJt

xIas-t

in,cluU

dUnl ie as[ses;,m

,

tt

L,ULAee

UL

LLngUl

-bs

into-4

Thlis

1JtLlg±5fl54

riee ded'for~ "-e-rW-,,a l I1~UU&~U iU~ 1i()aoe L U j4 j;oint J .L~ U VuU"IY 4. -"I kw LJ ~J'WV~_

Aeronaves should be recapitalized and placed in a more equitabUle fiancia.l status to pen11t it to properly realize its full potential in a highly competitive field. (d)

'rhe domestic fare structure is irrational in many respects and produces some strange anomalies.

The airline user

may be faced with the choice of delaying his trip or paying additional fare to ride the alternate airline. A route and fare structure study should be initiated at an early date to resolve some of the anomalies and to put fares on a cost reflecting basis. Such a study would be a proper field of enquiry under the proposed new Sub-Iinister for Civil Lviation. xxxv. Mexico's civil aviation sector has, with some minor exceptions, bothi the agenc.es and qualified manpower to implement effectively and efficiertly the National Aviation Policy. The primary need is a strong coordinator able to direct and inspire the existing organizations to fulf-ill their terms of reference in full cooperation with the rest of the sector. If a well qualified man can be appointed to the recormmended new post of Sub-N.riister for Civil Aviation., and be given full Governmental support, a much more eff:icient civil aviation system can be achieved.

- 66 VII,

UTRBANI TRA,'TSPr)-'T

i= Over much of the world uirbnn traffic congestion has become a sericue domestic problem of the 20th Century. It is particularly burdensome in the large)

l

y

gp'rs,.rcT

-et+o i

4ci

of

developing

nniirnco 'n+

s.

In

absolute terms, these cities cannot easily face the high costs of the tracitiona' solu r-Pwna 4- ,rbi of c by ri-1 urb ar.n fre-way construction. Nor, in relative terms, can the Governments easi'ly contemplate 4-1,e -'location of large s-atisf =st hdmns sat'1 -o'r UI±A ativ' ULa c"_ dJ UUdU U UJ. ±dL U II 4of UU _D. UVZ111.U.LUO VU± L '3111J 1, ~,UIII}JJ dIL V-LVq, richer, car owning minority when large groups of the rural population have none or or'y a b are M_i.ilmlu,li Of the DasLu ±iL1aL1Ldr and wui± soia Ur-vices s^ usually found in urban areas. The economic returns from many urban transport 11 Iuvioeinauls - whv1'iic art-e ofe Ueitite savings - appear less tan gible and-urgent to decision makers than investmnent in agriculture or industry. Nevertheless,c national pride is one rionng other iurenti-ves for thern to in-vest heavily in transport in the capital and other major cities. In Mexico, this general transport problem and resource allocation dilerma is ccz,pounded by the physical environment of Iiexico City. It iies in a valley surrounded by mountains which make outward expansion expensive and, in some directions, impossible. Problems of subsidence and the need to strengthen structures against earth tremors make upward building of the city and underground construction costly. Finally, because of its location, very high costs are involved in providing the extra water supplies and increased sewage facilities needed. ii.

iii. Despite the rising costs of providing for a growing population, Mexico City continues to increase in size. Its population has grown at over 5-0 p.a. for the past three decades and there is little sign of it slackening. About one-third of the present 9 million people in the i4ietropolitan Area (i.e. in the Federal District (7 million people) and in the immediate suburbs lying within the State of Mexico) were born elsewhere in Mexico and have migrated to the area. Present evidence suggests that even if there was no further net immigration to the area, the total population as a result of natural increase trends would rise to about 20 million byr the end of this century.'/ iv. Cutting off migration into the area does not seem administratively or politically feasible in present circumstances. In addition, strong economic forces seem likely to maintain a high attraction rate to the area because of its dominance in the Mexican industrial manufacturing scene. Only two citieDs. Guadalajara and Monterrey look as if they could act as counter-magnets in the short run. NTevertheless, and although their populations are growing slight:Lv faster than Mviexico City's, their presently much smaller absolute size (about 1 million people) makes it seem unlikely - in the absence of drastic measures that they will shake the dominance of the Mexico City Mietropolitan Area for some decades. It is unlikelvy therefore. there will be in eayv or earlv relocation of capital and human resources. A slo-ing dowm in the rate of ePnnomio gvornwh in Texico City is Pnqn y -asrimi posibility that 1/

There is little sign of a declinrng birth rate and no expi cit policy to bring this about has been announced.

- 67 needs to be recognized by the authorities. Ihether this will affect the total Iiexical economy seriously will depend on how far output and productivity increases elsewhere to compensate it. vs Thus the most probable prediction is that M4exico City will continue to grow rapidly but, because of traffic congestion and problems of water supply, se-age and subsidence: a) the quality of urban life will fall and b) public sector expenditures and social costs will rise quickly. vi. The urban transport problem, therefore, is but one element in the larger problem of trying to achieve an efficient economic and social functioning of an urban population of perhaps twice the present size within 25 years. This will need clear answers as to the size of the Metropolitan Area, the shape it should take, the extent of public and private transport and the amounts of above and below ground transport. vii. A plan for the overall growth of the Metropolitan Area could3 ease the problems. This should be at two levels. At the national level. it is necessary to consider the national problem and develop a program to make other large cities and tcwrns good substitutes for Iexi eo Citvy so aS to eneourage migration there. Practically, this means choosing a package which a) gets a balance of cror+th between riainlv Guadnlajara and Mr 1onterrey nnd other towns at a distance from Mexico City; and b) develops areas, e.g., Toluca in the StMae of MeVico on the other sldeof the moulntins, that are near enough to Mexico City to become parts of a greater Metropolitan complex and thus beneflt from, annd complem.,ent some of U.-e industril and specialized activities there, At the city level, it means choosing a strategy of expansion for the immediate j rexico Cityarea wThi.bch fully +es illtO acco-t +he pravate nd public sector costs of alternative policies and patterns of development

working on various aspects of the problems. 11nA

onvrrn

eor

M-rvil,41

ci.1 "d

service~

have been made. p.

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jLAL.Av.~4

+0og+1vr V'..~

be

c

v.

AJ 0

lecisive

no

In addition, the administrative 4

in

4

r-...-A-n

actio.LnJL

ensuring

Planning at present, however, is fragmented. 4

and O.LJ

-

hc-

ac,iney .. br1og-h, '-'4. '

--

rn-ere

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U V

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...

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UJl

politic jJ±.L

p4--1o

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It must be 4-s, -04U tALdi,

~.1.can.

Jlt

L' C

generate rational, financially and economLically costed and politically feasible I1U..+

;U.L'L UL-Lon,

ix.A.

;

4_

LV.J

-u

1±dL

A

+ 1, -

L11XC

t~

-

4-4

is~one

4J.L

JV

3

J ea dU.L C

__

.L

%J

__

.J L

A__ %''4i-bLU±i

J

I11LQeS'.,

fdactor ini

i±e±ring

to

achieve

the beus

pattern cof growth. The costs and tine involved in travel are importart determinwants of net benefis of one a,ler-atiue pattern against another. To test the economics involvTed in the alternatives, experience elsewhere indicates that Land use and transport modelling atudies will be needed in lMexico on a scale not yet contemplated by the authorities. Ilhat is needed is to develop the traditional models designed for U.s. and EuroDean c:ities, but with much more emphasis on land use, regional anaL sule broad economic planning aspects of the problem. There are many able people in Mexico who couild form teams to do much of the work. They need expert support, hotlever,, frolm outside both to avoiddupli cating the mistakes made elsei-here but to benefi from advamced thinking. lianding the work over to foreign consultants is

- 68

-

neither necessary nor desirable in M1exico. E.peri-ence elsewhere in major urban studies suggests that a total reliance on the use of foreign consultants can result in a situation where a) it does not leave behind an adequate "memoryy" or learnLing experience; b) there are serious difficulties in adanting the usual models because of a lack of appreciation of local conditions and social motivations7

and c)

an adenuate consideration is

not. given to nlter-

natives because of either a presumption of massive expenditures on freeways or a nre iudice in

favor of mibwunvs.

The best, sol util on in

Mvexio

wonild seem

to be a high level, quasi-Governmental commission that would sub-contract some or parts of the numerous studies needed to donestic anri foreign firmes and expert individuals. x.

In addition to the above overall strategic questions, there are a

nmh-qer of in.nyrtant tac-tic-_al ones~that needl ex--^-at-o-: (1)~rcf'4mic+

town T of

,4

Te

i

to-. th 4,v,

o

4she

international airport and entirely within the State of lexico, has grownL fro almost nothing to 600,000 people in 10 years. This was cormpletely unforeseen and unplanned. T}nLe sV'V tovr t+whout most. elrntr ~ ~V~~J.~.~V Le V~

P tb jUU.L

1~It1U. J.L

evcsJ~b

It is not, holwever, a slum ("barrios") as fournd elsewhere in

T at -4

-

AUJ.4±-

.

Tt4VZ

LUU

-1-4

4

EU

i1habit.1-its r

have a sense of community pride anid self-help. It is an exanlple, however, of -wh.at Ifl'ig be eU.peetedl to be repeated elsewhere in the area with unplanned gro-,th. The State Government haas liriaginatiVe pl ns to supply services at a cost the inhabitants can afford, wv.ith subsidization. By tiLs

m111e1as

tih

is littl

.LiKlood

tha-T

Tthe

improvements

proposed will lead to the "richler" poor displacing the 'poorer" poor whLTo now live there, and has happened elsewhere in the world. How to provide reasonable public services without a subsidy to very poor people is a worldwide question. Accordingly, what is being planned for this toi-m seems worthy of foreign fin.ncial support not only in its own righ-t but as a case study for the benefit of other nations, particularly in Latin America. (ii)

The new^ MIetro authority in Iiexico City is dycanaic and arnxious to extend its newly constructed system. This makes sense, however, only in terms of a plan whidch will look at freeway construction and rising car ownership. lere again would seem to be an excellent opportunity for the authorities

to test the effect of a ne-

Petro on a city before

approving any extensions in Liexico City or newf systems in other towns. (iii)

As in many Latin Pierican countries, the bus system is privately omned (perheps 3,00 individunls) and apparently profitable. But the vehicles are often dirty, services slow and routings tortuous. The system has to adapt to a changed role not only because of the new Metro but because

- 69 the city is growing, the inhabitants are travelling longer distances than found in many other cities. and there are groups who could pay higher fares .or improved services. Among the basic questions that need examination is that of "municipalizing" or aggregating ownership into larger groups or comnanies; the effet of the present system of controlling entry into the industry nnd keeping its fnres at nn ex-eptionanlly low level. !ithough some imaginative exercises are being done without public support at the Polyecehnic to~identify betLter bus routing pattenis, they are in need of additional data and financial support to produce

In. the

res-ts.

e.-ly

,-=

sion's view a thorough high level policy review should be colAsidleredo

±l,.-;

would

iUnc]ude -4

economics

dr.I

d.org-

zation of bus services and of their partial substitutes (tadAiLSI,

par`icu.lJarl

whe1

"pese

!

or-l

fLiLU

Vuui,

uol-±

lective taxi s. This review could possibly form the basis for a subsequent pre-irlvtUaLtetlU study designed to assess the need and financing of bus purchase requirements. (iv)

A basic inconsistency that must be reconciled in 1Iexico uCity is between tLe current policy of attempting to provide more parking spaces and a belief that some fo.-n of restraint is needed over car use to alleviate the social costs of congestion, pollution and the financial feedback effects on the finances of public transport. The need for a gasoline surtax has been discussed earlier in para. xlii., Chapter I!I. The possibility of a "road pricing" solution is being given increasing attention outside Mexico, particularly, for example, in the U.K. The possibilities offered by such a solution should be investigated by the f_exican authorities, taking into account the broader national road user charges implications.

(v) Traffic engineering still offers the possibility, at low cost, of increasing street capacity in Mexico City. More and better qualified staff are needed to introduce improved techniques. The functions should be separated from the Traffic Police. xi. In short, there are many facets to the Ilexico City urban transport problem. There is a need to tackle them in a coordinated, more professional and scientific way. Substantial investment proposals will be needed covering the Metro, beltways, freeways, more housing and new town construction. These would be easier to appraise, and the economic and social costs of alternative actions identified for decision makers, if the large number and variety of studies described in the full report were undertaken. Although, in total, they should take three to five years to complete many could be structured to produce useful information for decision making at earlier stages.

- 70 xii. Finally, in the mission's view a close partnership between the Bank and the different authorities in the Metropolitan Area could be constructive and fruitful: (i) there is a need to develop appropriate methodologies for urban studies in develoning countries since much that has been done so far has not been successful; (ii)

a particular aspect, for example, is to improve the returns from inTrPestlent in freewa-s nnd mass tr.-nqit - 1'iexi coGity would seem a particularly suitable case since it is completing a new Tflptrn nnfd niiyn,-roiis Tprnnnqq!'s i--

where in (iii)

(iv)

beni no, -made Plse-

the developing world;

the various adnmnistrationls involved are well equipped to tackle the issues ser,ously anId, because of the gravity of their own- problem, are concerned; there are many people in and out of Government who have srome of the skills

&nd ina g-inatioun

r

ev .

anvd th+ere is-

some excellent data so the efforts will not have to start

Al_L

v

i ±

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i

U;Vli:

1s

Ui1m dU

±1

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r1JU11

dU

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bUut

studying and tackling the urban problens of MIexico City in a deliberate wTay not orly co-A 44 i lay the -ouUUdU.LUU for a possibl.y soul,d ±Uei^natioIL consulting and advisory business but also maice a major contribution to an understanding and solutlon of the gro-w-ing uurban probItrns elsewhere.

fl1ThEX A

PREAMBLE uF

iiAm3'H

14-15-16

Ii

(CHAPThR 69) "i'.n Act to Define and Implement a National Transportation Policy for Canada" It is hereby declared that an economic, efficient and adequate transportation system making the best use of all available modes of transportation at the lowest total cost is essential to protect the interests of the users of transportation and to maintain the economic well-being and growth of Canada, and that these objectives are most likely to be achieved wfhen all modes of transport are able to compete under conditions ensuring that having due regard to national policy and to legal and constitutional requirements: (a) regulation of all modes of transport rill not be of such a nature as to restrict the ability of any mode of transport to compete freely with any other modes of tran.sort s o far nn nraMcti cabl e hbears a fair proportion of the real costs of the resources,

(b) each mode of trnsnnort. facilit,ies

ind cer,nrces

rwovided that. mnories of tr-ns-

port at public expense; (c) each mode of transport, so far as practicable, receives com.pensation for the resources, facilities and servnces that it is required to provide as an imposed public duty; (d) G-. mode of ta.or,so

-a as

ciohe

-tes

traffic to or from any point in Canada under tolls and conditions thatv An consti tute: r.ot

any such traffic beyond that disadvantage .-Z± U ±1 VtJLUM4-UJ. -U i.luerentin -1-e 'IJAUc,± -location or vol'a.e ofL JU.:

L

.he-

traffic, the scale of operation connected Wel-erW±v.,±

or- the t1L,Yj

Uo4 UaLL.L4e.±

or-

ser-

vice involved, or (ii)

an undue obstacle to the interchange of conmodities between points in Canada or unreasonable discouragement to the development of primary or secondary industries or to export trade in or from any region of Canada or to the movement of commodities through Canadian ports.