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A.) --2 A/Document of
The World Bank
FOR OFFICIAL USE ONLY
MICROFICHE COPY
Repot-t No. :10673-ME Type: (SAR)Title: TRANSPORT A IR QUALITY MANAGEME Report No. 10673-ME
Anuthor: MUMME CExt. :38077 Room:10100 Dept. :L(A2IE
STAFF APPRAISAL REPORT
MEXICO
TRANSPORT AIR QUALITY MANAGEMENT PROJECT
FOR THE
MEXICO CITY METROPOLITAN AREA
NOVEMBER 20, 1992
Country Operations Division ICountry Department IILatin America and the Caribbean Regional Office
l Tbis document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EOU1VALENTS
Currency Unit = Peso (Mex$)US$1.00 = 3,114 Pesos (October 13, 1992)
FISCAL YEAR
January 1 to December 31
UNITS OF WEIGHTS AND MEASURES
Metric British/US Equivalent
1 kilometer (kIm) = 0.62 mile (mi)1 meter (m) = 3.28 feet (ft)1 gram (g) 0.0022 pound (lb)1 kilogram (kg) = 2.20 pounds (lb)1 ton 2,205 pounds1 cubic meter (M3) = 6.29 barrel (bbl)1 cubic meter (M3) = 35.32 cubic feet (ft3 or SCF)1 cubic met.zr (M3) = 264 U.S. gallons (gal.)
ACRONYMS
BANOBRAS National Bank of Public Works and Services (Banco Nacional de Obras y ServiciosPiblicos)
CETES Treasury BillCFC ChlorofluorocarbonCFE Federal Power Commission (Comisi6n Federal de Electricidad)CGT General Transport Coordinating Office (Coordinaci6n General de
Transporte)CMPCCA Commission for the Prevention and Control of Environmental Pollution in the
Metropolitan Area of the Valley of Mexico (Comisi6n para la Prevenci6n y Contrzde la Contaminaci6n Ambiental en la Zona Metropolitana del Valle de Mexico)
CNB National Banking Commission (Comisi6n Nacional Bancaria)CNG Compressed natural gasCO Carbon monoxideCO2 Carbon dioxideCOCODER Coordinating Commission for Rural Development (Comisi6n Coordinadora para el
Desarrollo Rural)COTAM Metropolitan Transport Council (Consejo de Transporte del Area
Metropolitana)COTREM State of Mexico Transport Commission (Comisi6n de Transporte del
Estado de Mexico)CPP Index of Average Cost of FundsDDF Federal District Department (Departamento del Distrito Federal)DF Federal District (Distrito Federal)
FOR OFFCIAL USE ONLY
DGAU General Directorate of Urban Automobile Transport (DireccionGe. -ral de Auto-Transporte Urbano).
DGE General Directorate of Ecology (Direcci6n General de Ecologfa)DGPA General Directorate for Environmental Projects (Direccidn General para Projecte3 del
Medio Ambiente)DGVT/SoM General Directorate of Highway Administration and Transport of State of Mexico
(Direcidn General de Vialidad y Transporte, Estado de Mexico)EPA U.S.A. Environmental Protection AgencyGEF Global Environment FacilityGIRA General Interest Rate AgreementGTZ Getli,an Technical Assistance AgencyHC HydrocarbonsICIC Training Institute of the Construction Industry (Instituto de Capacitacidn de Industria
de Construcci6n)IDB Inter-American Development BankItM Inspection and maintenance systemIMP Mexican Petroleum Institute (Instituto Mexicano del Petroleo)INE National Institute of Ecology (Instituto Nacional de Ecologfa)LPG Liquified petroleum gasMCMA Mexico City Metropolitan AreaMTBE Methyl Tertiary Butyl EtherNAFIN National Finance Institution (Nacional Financiera, SNC)NO. Nitrogen oxidesOECF Overseas Economic Cooperation Fund of JapanPM1o Particulate matter less than 10 microns in diameterPFIs Participating Financial IntermediariesPEMEX Mexican Petroleum Company (Petrdleos Mexicanos)PFPA Office of the Federal General Counsel for Environmental Protection (Procuradurfa
Federal de Protecci6n al Ambiente)ppm Part per millionPRETAM MCMA Transport Policy and PlanSARH Ministry of Agriculture and Water Resources (Secretarfa de Agricultura y
Recursos Hidraulicos)SCT Ministry of Communications and Transport (Secretarfa de Comunicaciones y
Transporte)SECOGEF General Secretariat of the Comptroller of the Federation (Secretarfa de la Contralorfa
General de la Federaci6n)SEDESOL Ministry of Social Development (Secretarfa de Desarrollo Soc;a:)SEDUE Ministry of Urban Development and Ecology (Secretarfa de Desarrollc Urbano y
Ecologfa)SEDUEWSE Subsecretariat of Ecology of SEDUE (Subsecretarfa de Ecologfa de SEDUE)SHCP Ministry of Finance and Public Credit (Secretarfa de Hacienda y Credito Pilblico)SMI Small and medium size industrial companySoM State of Mexico (Estado de Mdxico)SoM/SE Secretariat of Ecology of State of Mexico (Secretarfa de Ecologfa, Estado le Mexico)UNAM National Autonomous University of MexicoVOC Volatile organic compoundsWHO World Iealth Organization
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
MEXICO
TRANSPORT AIR OUALITY MANAGEMENT IN THE MEXICO CITY METROPOLIT REA
AFF APPRAISAL REPORT
Table of ContentsPage No.
L.OAN AND PROJECT SU MARY ............................................. i
L TRANSPORT AIR QUALITY MANAGEMENT IN THIE MCMA ........................ 1
A. The Air Pollution Problem ...... ............... ... 1............. B. Transport and Air Pollution ..................... 3C. Legal and Institutional Framework ...... ................... . 7D. Human Resources ........................................... 12E. The Government's Air Quality Strategy for the MCMA ....... .. ........... 14F. Relevant World Bank Experience .............. .................... 16G. Applying the Lessons of Experience ............. ................... 17H. Rationale for Bankl Involvement ................................ ... 18
! TBE PROJECT ...................................................... 19
A. Origin of the Project .................... ...................... 19B. Project Rationale ..................... ....................... 19C. Project Objectives .................... ....................... 20D. Project Description .................... ....................... 21E. Project Costs and Financing ................. .................... 30F. Implementation Schedule ....................................... 33G. Project Organization and Management ............ ................... 33H. Flow of Funds ..................... ........................ 40I. The Lines of Credit .................... ...................... 40J. Procurement ............................................... 46K. Disbursements .............................................. 48L. Accounts and Audits ........ ............ ...................... 48M. Project Supervision, Monitoring and Evaluation ....................... .. 50N. Benefits and Risks ......................................... .. 51
IIL AGREEMENTS REACHED AND RECOMMNDATIONS .......................... 53
A. Agreements Reached During Negotiations ........................... 53B. Condition for Loan Effectivenass .................................. 55C. Events of Defaut ............................................ 55D. Recommendations ........................................... 55
The report is based on the findings of a World Bank appraisal mission which visited Mexico from February 10 to March 9.1992. Tbe mission was composed of Carl-Heinz Mumme (Task Manager); Gunnar Eskeland (CECPE); Ferne Molnar(LEGLA); and Philip Cornwell, Philip Glaasner, Howard Jones, Ivan Rizo, Christopher Weaver and Taizo Yamada(Consultants). Mmes. Alba M. Renero and Sandra Vallimont assisted in the production of the report. Country DepartmentDirector, Rainer B. Steckhan. Division Chief, David de Ferranti. The assistance prmvided by the German, Japanese and U.S.Authorities, which helped to finance consultant services used in the preparation and apprisal of the proposed project, ismtefulfy acknowledged.
PageNo.
TABLES
Table 2.1: Project Cost Summary .................................. 31
Table 2.2: Financing Plan ............. .......................... 32
Table 2.3: Project Cost by Procurement Method ............ . ............ 49
CHART
Chart 2.1: Flow of Funds ......................... 41
ANNEXES
Annex 1: Updated Summary of Sector Report .56
Annex 2: Review of Relevant World Bank Experience inPollution Control .86
Annex 3: Timetable for Initiation, Completion and Discussionwith the Bank of Technical Assistance and Studies ..... ......... 92
Annex 4: Credit Lines . ......................................... 94
Annex 5: Implementation Schedule ................................. 100
Annex 6: Responsibilities of Executing Agencies ........................ 102
Annex 7: Allocation of Loan Proceeds ............................... 106
Annex 8: Estimated Schedule of Bank Loan Disbursements .................. 107
Annex 9: Implementation Indicators ............................... 108
Annex 10: Impact Indicators-Emissions Reductions from the ProposedProject and Additional Government Measures ................ 113
Annex 11: Documents Available in the Project File ........ .. ............ 116
MAP IBRD 24056
MEXICO
TRANSPORT AIR OMWJTY MAGEMENT ZROJECT FOR
MEXICO CiTY MTROPOLffAN AREA
LOAN AND PROJECT SUMMARY
Borrower: Nacional Financiera, S.N.C. (NAFIN)
Giuarantor: United Mexican States
Executing Commission for the Prevention and Control of Environment PollutionAgencies Mand in the Metropolitan Area of the Valley of Mexico (CMPCCA), Environ-lenerfidaries: mental Trust Fund, Ministry of Health, Ministry of Social Developn.ent
(SEDESOL), National Bank of Public Works and Services (BANOBRAS),National Finance Institution (NAFIN), Participating FinancialIntermediaries (PFIs); Federal District Department (DDF), Secretariat ofEcology of the State of Mexico (SoM/SE), Mexican Petroleum Company(PEMEX), Mexican Petroleum Institute (IMP), Metropolitan TransportCouncil (COTAM) and private owners of high-use vehicles, inspection andmaintenance (I/M) stations and gas stations.
Amnount: US$220 million equivalent.
Trmsa: Repayment in 15 years, including 5 years of grace, with interest at theBank's standard variable rate.
Re'endingterms: The Guarantor would onlend US$172.9 million equivalent at the 28-day
CETES (Treasury Bill) rate as follows: US$89.1 million equivalent toNAFIN, and US$80.3 million equivalent to BANOBRAS. The Guarantorwould onlend US$3.5 million equivalent to IMP on the same terms andconditions as the Bank loan. BANOBRAS would relend these funds toParticipating Financial Intermediaries (PFIs) ensuring that the cost to sub-borrowers would be no more than CETES plus seven and one-half pointsfor the purchase of taxis and no more than CETES plus six and one-halfpoints for other vehicle sub-components and no less than the GIRA(General Interest Rate Agreement) rate. NAFIN would relend the funds toPFIs ensuring that the cost to sub-borrowers would be no more than CPP(the average cost of funds to commercial banks) plus six percentage pointsfor the purchase of trucks, emission testing and diagnostic equipment andother vehicle sub-omponents and no less than the GIRA rate. TheGuarantor would make available: (i) US$11.5 million equivalent throughbudgetary allocations to SEDESOL for emission standard related work andair quality monitoring and forecasting equipment; and (ii) on a grant basisUS$0.4 million equivalent to NAFIN as executing agency to carry out theannual environmental audits and US$35.2 million equivalent through theEnvironmental Trust Fund to the DDF to carry out the remaining sub-components.
..
EmroectQ?jbJziy: The objectives of the proposed project would be to support a comprehensive
program to reduce air pollution in the Mexico City Metropolitan Area (MCMA)through measures to:
(a) reduce the growth of emissions of nitrogen oxides (NOx), volatile organiccompounds (VOC), carbon monoxide (CO), lead, and of particulate matterfrom transport sources;
(b) develop a policy framework to support both transport av.4 air qualityobjectives;
(c) improve the scientific base underlying the air quality program developmentand management; and
(d) strengthen institutional capabilities to effectively plan and implement air-quality programs over the long-term.
ProjectDescription: The proposed project would comprise five inter-related components:
(a) Vehicles Component (USSI.030.6 million in total prolect cost) including:(i) support to develop, promulgate and enforce emission standards for newvehicles, (ii) progressive improvemDents to in-use emission standards, andinspection and maintenance programs for high-use vehicles and privatecars, (iii) lines of credit to finance the replacement of old, high-use vehicles(taxis, trucks and minibuses) with new, emission-controlled vehicles,conversions of high-use vehicles to liquified petroleum gas (LPG) orcompressed natural gas (CNG), and re-engining and retrofit of emissionscontrols, and (iv) improvements to the vehicle registration system;
(b) Fuel Component (US$34.4 million) to help fund: (i) the installation ofvapor recovery systems at service stations, and (ii) an alternative fuel pilotprogram to speed the conversion of high-use vehicles to LPG or CNG;
(c) Transoort Policy and Management Component (US$2.7 million) to helpprepare an integrated Transport and Air Quality Management Strategy forthe MCMA to meet both transport and air quality objectives. The Strategywould set the context for policies related to travel demand management,urban freight management, public transport, and transport investmentplanning, which also would be supported under this component;
(d) Scientific Base Component (US$13.4 million) to help fund consultantservices to strengthen air-quality planning in the MCMA through anintegrated research plan and equipment for extending the air-qualitymonitoring system, short-term pollution forecasting and the IMP mobile-source emissions laboratory; and
(e) Institutional Strengthening Component (US$5.5 million) to support: (i)institutional strengthening of the CMPCCA Technical Support Team, andof other agencies, particularly those in the SoM related to air pollution, and(ii) independent annual environmental audits.
1B_Lim: Air pollution in Mexico City is a major and increasing threat to public health.Benefits due to its abatement include: decreased incidence of illness andpremature death due to respiratory and cardiovascular illness, and improvements
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in the overall well-being and quality of life of the population. Data on blood leadconcentrations in children, and the effects of these concentrations on intellectualdevelopment and learning indicate that, viewed as an investment in human capital,the project could have very high returns. Increased worker productivity andscb ol performance due to a lessened incidence of respiraiory disease andrespihatory discomfort are also likely, and the need to shut down industrialactivity and extend the sJhool holidays would be reduced. Non-health relatedbenefits are expected to include .ncreased crop yields, reduced damage to buildingmatetials and increased tourism. Although it is not possible to make preciseestimates of likely air pollution reductions as a result of the proposed projeet andthe additional Government measures, some tentative estimates have been made for1995, by which tim ;iost of the project sub-components are planned to beiniplemented. If no actions were taken, by 1995 motor-vehicle related emissionsare est-aiated to increase by 0.52 million toxicity-weighted tons, over the 1989level, to 1.84 million tons per year. The project would reduce emissions growthby 0.44 million tons, resulting in motor-vehicle related emissions of 1.40 milliontons for 1995, offsetting to a large extent the estimated emissions growth.Additional Government measures having quartifiable emissions impacts areestimated to result in a further reduction of 0.75 million toxicity-weighted tons,resulting in a measurable net improvement in environmental conditiuns by 1995,despise population and economic growth. However, considering the technical,operational and institutional risks involved in the program, the estimatedemissions reductions may well represent a "high case" estimation and theemissions reductions achieved may be actually lower. On the other hand,significant unquantifiable benefits from other project and Government measureshave been omitted from the estimates.
Risks: The proposed project provides a unique opportunity to help the Government ofMexico to address the very serious environmental problems in the MCMA. TheBank's country strategy attaches priority to environmental projects. TheGovernment has provided strong evidence of its political commitment by raisingthe price of gasoline, curbing vehicle use and establishing mandatory reductions inproductive activities when pollution reaches unacceptable levels. However, theproject also poses technical, operational, and institutional risks. Transport airpollution is a relatively new area for the Bank, and involves many difficulttechnical issues. There is thus some possibility that the program may not fullyachieve its objectives, or thac driorities may be found, in retrospect, to have beenmisplaced. To minimize this risk, the Bank has conducted extensive sector work.The Bank also established both internal and external advisory panels, and hasretained expert consultants to provide advice and guidance. The technical basisunderlying the proposed project has been endorsed by the external advisory paneland by participants in an international air quality management seminar heldrecently in Mexico City, which included senior representatives from both theGerman and U.S. environmental agencies, and Mexican and international experts.The decision to rely on measures which have already been proven inindustrialized countries would also help to minimize the risk of making a seriouserror, as would the heavy emphasis on studies to develop the underlying scientificbase and evaluation methodology for air quality program planning. Institutionalissues will be addressed through well focussed technical assistance and intensiveBank supervision.
I i
iv
Cost Summary:LEAL OREIGN TOIAL
(in Milion of U.S. Dollars)
I. Vehicle Component 40Q84 S22.8 2312(a) Emission standards 2.0 4.6 6.6(b) I/M systemn 10.8 19.6 30.4(c) High-use vehicle fleet modernization 395.1 498.4 893.5(d) Vehicle registration system 0.5 0.2 0-7
11. Fuel Component 15.Q 14.(a) Gasoline vapor recovery system
kStage 0 & I PEMEX) 4.9 6.3 11.1(b) Gasoline vapor recovery system
(Stage I & II, DDF & SoM) 9.6 8.2 17.7(c) Alternative fuel pilot program 0.6 0.3 0.9
III. Transport Policy and Management Component 1.3 1.3 __5
IV. Scientific Base Component 4.7 7.0 11.6(a) Technical assistance for CMPCCA 2.5 1.8 4.2(b) Equipment for SEDESOL/INE '.8 3.0 .8(c) IMP mobile-source emissions laboratory 1.4 2.3 3.7
V. Institutional Strengthening Component 4A Q l.15.1(a) CMPCCA technical support team 3.9 0.8 4.7(b) Annual environmental audit 0.0 0.4 0.4
Total Base Cost Estimates 433.4 546.8 980.2
Physical Contingencies 11 1.5 4.2 5.7Price Contingencies 44.6 56.2 100.8
Total Project Costs 479.5 607.2 1.086.7
Of which: (a) taxes, duties, 145.0and (b) land 3.3
I/ The high-use vehiele fleet modernization sub-component, by its nature, does not require physicalcontingencies.
v
Fnancing Plan: LAL FOREIGN TOTAL
(In Milion of U.S. Dollars)
Government of Mexico 44.6 - 44.6Private Sector 335.3 387.2 722.5IBRD 220.0 220.0Subloan Reflows 99.6 - 99.6
Total 479.5 607.2 1.086.7
Estimated BankDisbursement:Bank FY 1993 1994 1995 1996 1997
(in Million of U.S. Doilars)
Annual 43 70 74 22 11Cumulative 43 113 187 209 220
a/ Includes US$20 million for the special account and US$7 million for retroactive financingincurred after May 1, 1992.
EconomicRate o oReturn: Not app!.cable
MEXICo
I. TRANSPORT AIR OUAL MANAGEMENT !N THE MCMA
.1 'The Mexico City I'etropolitan Area (MCMA) is one of the most populous urban areas inthe world and has a very serious air pollution problem. The MCMA population has grown from lessthan 1 million at the beginning of the century to 15 million in 1990, and is projected to reach 20million by 2010. With about one sixth of the nat.on's people, the MCMA cortributes some 36-7 ofMexico's gross national product.
1.2 The air pollution problem in the MCMA is complex, and the Bank has carried outextensive sector work to define better both the scope of the problem and the potential solutions. Areport, Tr[a port Air Quality Management in the Me. ..o City Metropolitan Area (World Bank SectorReport No. 10045-ME dated March 9, 1992) includes a de,ailed analysis of the present stuation andtrends, extensive cost-effectiveness analysis of potential air pollution control measures, and art outlinestrategy for transport and air quality management in the MCMA. An updated summary of the SectorReport is provided in Annex 1.
A. The Air Pollution Problem
1.3 The critical air pollutants in the MCMA are ozone (03), fine particulate matter, carbonmonoxide (CO) and lead. Ambient levels of the first two far exceed health-based norms, and theirconcentrations are increasing or holding constant, despite significant pollution control efforts.Ambient lead levels have been reduced greatly in the last few years to levels near or belowinternational norms, but further reductions are desirable. Toxic and carcinogenic air contaminantssuch as benzene and formaldehyde are also of concern, but quantitative data are unavailable.
1.4 (zone. Exposure to high ozone levels causes irritation of the respiratory tract, andreduces lung function. Long-term ozone exposure is suspected of causing irreversible deterioration inlung structure, similar to emphysema. Ozone also retards plant growth and damages materialsexposed to it. Ozone concentrations in the MCMA are the highest currently being measured in anycity in the world, reaching more than three times the accepted national and international norms.During 1991, the Mexican ozone standard of 0.11 parts per million (ppm) was exceeded in theMCMA on more than 88% of days in the year. Ozone is a "secondary" pollutant, formed by thereaction of oxides of nitrogen (NOx) with sunlight and volatile organic compounds (VOC) in theatmosphere. Both NOx and VOC are necessary to produce ozone: either NOx or VOC availabilitymay be the limiting factor in ozone production, depending upon their relative concentrations. Theavailable evidence suggests that NOx is usually the limiting factor in the MCMA, but reductions inboth pollutants are desirable.
1.5 &sVended Particulate Matter. A*ine particulate matter less than 10 microns in diameter(PM1O) result: from direct emissions of smoke and fumes, dust stirred up by vehicles, windblowndust from devt getated areas, and secondary particulate matter formed in the atmosphere from primarypollutants. Exposure to high PM1O levels .esults in increased rates of illness and death from respira-tory causeu. Bosb peak and annual-average particulate levels in the northeastern part of the MCMAfar exceed the Mt xican health advisory level. The Mexican 24-hour particulate standard of 275guglm was exceeded in the northeastern area on more than 80% of the days in 1991. The standard
was also frequently exceeded in the soutieast, central, and northwestern portions of the MCMA. The
2
limited data on particulate composition suggest that the sources are primarily combus0on andsecondary particulate in the central MCMA, while dtLst is also a major factor in outlying areas.
1.6 Carbon Monoxide. Carbon :lonoxide (CO) is formed by the incomplete combustion ofcarbon-containing fuals. WIen inhaied, CO binds to hemoglobin in the blood, deactivating it. Thisprevents +he transport of oxygen through the body, and reduces the oxygen supply to sensitive tissuessuch as the brain, heart, and linings of blood vessels. The results of moderate CO toxicity includeshortness of breath, increased blood pressure, headaches, and difficulty in concentration. CO effectsare aggravated by high altitude and are most significant in pregnant women, young children and thosesuffering from heart or respiratory disease - groups making up a large percentage of population in theMCMA. In the MCMA, nearly all CO emissions are produced by gasoline vehicles. In 1991, COconcentrations exceeded the Mexican 8 hour average standard of 13 ppm 63 times in the northwestportion of the MCMA, and less frequently in other areas. The number of CO violations experiencedhas been increasing in recent years. Human exposure studies have shown that pedestrians, roadsidevendors and vehicle drivers and passengers are exposed to CO concentrations at street level well inexcess of the standards.
1.7 Lead. The major source of atmospheric lead in the MCMA is combustion of leadantiknock compounds in gasoline. Lead is a cumulative, systemic toxin with effects on bloodpreesure regulation and on the nervous system. At sufficiently high levels ir. the blood, lead acts asan acute toxin, damaging kidneys, the nervous system, and the brain. However, changes in enzymechemistry, and statistically significant effects on intelligence in children and blood pressure levels inadult males, have been demonstrated at blood lead levels well below those alat produce acute toxicity.Since idult blood pressure levels are strongly related to death rates from stroke and heart dl,ease,chronic exposure to 'ead would be expected to increase deaths from these causes. PetroleosMexicanos (PEMEX) has already taken action to reduce the lead content of gasoline sold in theMCMA (para. 1.25), and new emission standards requiring the use of catalytic converters in newvehicles require these vehicles to use unleaded gasoline. Although current levels of atmospheric leadin the MCMA are near or below international norms, the current consensus among scientists is thatno amount of lead in the environment can be considered safe.
1.8 Health and Economic Impacts. Quantitative data on the health and other economicimpacts of air pollution in the MCMA are only beginning to be developed. A rough preliminaryanalysis by the Bank puts the economic damage from the health impacts of air pollution in theMCMA conservatively at US$ 1.1 billion per year. Substantial disruptions to the economy and tocitizens' daily lives occur due both to the direct consequences of pollution and the effects of remedialmeasures. Examples include the closure of the city center to vehicle traffic, the closure of schools,and the temporary shutdown of industrial establishments representing a large fraction of totalindustrial production in Mexico when ozone concentrations are expected to reach aritical levels. InMarch 1991, a major oil refinery in the Federal District (DF) was permanently closed in order toreduce emissions. Users of private automobiles have been affected predominantly by a measurecalled "Hoy no Circula" (para. 1.57), which prohibits the circulation of motor vehicles on one work-day per week; this ban is extended to two days per week during critical episodes.
1.9 Relative Weighing of Pollutants. Not all pollutant emissions are equally toxic. Usinghealth.-based environmental norms as a starting point, a set of weights has been developed in theSector Report which roughly reflects the relative noxiousness of different pollutants under MCMAconditions. These weights assign the highest value (per kilogram of emissions) to lead, followed by
3
NOx, PM1O, VOC, SOx, and CO (Annex 1, Table 1). Refe,ences to "toxicity-weighted emissions"throughout this report refer to emissions combined using this set of weights.
B. T'ransport and Air Pollution
1.10 Major snurces of pollutant emissions are road transport, industry, commercial and servicesector activities, waste disposal, and natural sources such as vegetation and windblown dust. Roadtransport is by far the most important single source, accounting for 84% of the total mass of pollutantemissions (55% on a toxicity-weighted basis), based on available emissions data.
1.11 The high level of transport emissions is attributable to the large number of road vehicles inuse; poor vehicle maintenance; past lack of stringent emission standards; unfavorable fuel properties;rapid urbanization (resulting in increased demand for road transport); unpaved roads in the peripheralareas (generating dust); and localized traffic congestion (resulting in pollution-producing "stop-go"driving conditions). The highest-polluting modes (on a per passenger-km basis) are taxis and privatecars, followed by public transport vehicles with internal combustion engines (combis, minibuses andbuses). Electric tranisport modes, such as the metro, produce no direct pollution; although theproduction of electricity does result in emissions, these are much less than would be produced byinternal combustion engines.
1.12 Private Cars. There are an estimated 2.6 million cars in the MCMA (approximately 173cars per 1,000 inhabitants). The fleet has been increasing rapidly in recent years, due to theimproving economic climate, and Government policies promoting motor vehicle ownership. Carscarry some 24% of total daily passenger trips (34% of total daily passenger-km), and produce 38% oftoxicity-weighted mobile-source emissions in the MCMA.
1.13 Taxis. A fleet of around 67,000 taxis carries over 1 million passenger trips per day in theMCMA, accounting for 8% of toxicity-weighted mobiie-source emissions. Taxi emissions perpassenger-khi are extremely high, due to the high level of emissions per vehicle-km and to the lowaverage occupancy rate. The Government has begun a program to replace all taxis older than 6 yearswith new vehicles incorporating emissions controls. Before this program was initiated, the taxi fleetwas old and in poor condition, with over 60% of the fleet more than 10 years old, and 93% morethan 6 years old. Because of the high annual emissions per high-use vehicle, the Governmentprogram to replace existing taxis with new, emission-controlled vehicles is highly cost-effective(Annex 1, Table 4). This program would be supported by the proposed project (para. 2.15).
1.14 Public Transport. Collective transport accounts for an estimated 72% of passenger trips(63% of passenger-km), but only 15% of the vehicle-kilometers travelled and 17% of toxicity-weighted mobile-source emissions. The operational combi fleet (typical capacity 11 seatedpassengers/vehicle), estimated at about 38,000 units, carries some 8.8 million passenger trips per day- more than any other single mode. Due to their small capacity, combis contribute disproportionatelyto congestion and the Mexican Authorities are encouraging their replacement by minibuses (typicalcapacity 23 seated passengers). 7,000 minibuses carry about 8% of daily passenger trips (7% of dailypassenger-km). Buses carry over 6 million passengers per day and, in terms of daily passengers andpassenger-km, are the second most important public transport mode. Because of their heavy usageand high annual emissions per vehicle, replacement or retrofitting of buses and minibuses with
4
emissions controls would be highly cost-effective, and would be supported under the proposed project(para. 2.15).
1.15 The DF has a modern metro, extending over 141 route-km and comprising eight lines.The metro system carries an average of 4.8 million passenger trips per day, about 17% of totalMCMA person trips. A trolleybus network extends for about 522 km, with 27 routes, but fulfillsonly a minor role in providing passenger transport (0.5 million passenger trips per day); a single 12.5km light rail line in the DF carries only about 10,000 passengers per day. The past lack ofcoordination between the Federal District Department (DDF) and the State of Mexico (SoM) hascreated a metropolitan transport system with major discontinuities at the boundary between the twojurisdictions. Vast numbers of passengers are forced to interchange between metro and bus at largeterminals located close to the boundary; few bus services operate between the SoM and the DF. Therecently formed Metropolitan Transport Council (COTAM) is addressing this issue and is expected topropose measures to introduce cross-boundary services and to harmonize regulations in the twojurisdictions.
1.16 Trucks. The MCMA is the largest source, destination, and transhipment point for freighttraffic in Mexico. About 200,000 gasoline trucks and 60,000 diesel trucks are estimated to beoperational in the MCMA at any one time. In addition, thousands of long-haul trucks fromthroughout the nation enter or pass through the metropolitan area every day. Together, long-haul andlocal trucks are estimated to contribute about 37% of toxicity-weighted pollutant emissions from thetransport sector. The proposed project would support vehicle modernization, conversion to liquifiedpetroleum gas (LPG) or compressed natural gas (CNG), re-engining and retrofitting with emissioncontrol equipment, in order to reduce pollutant emissions (para. 2.15).
1.17 Future Emissions. Given the present and expected future growth in the vehicle fleet ofaround 8% per year, pollutant emissions from vehicles - already far too high - are likely to continueto increase rapidly in the future. Although measures to manage travel demand are being undertaken(para. 1.21), near-term improvements in vehicle emissions must come primarily from reducingpollutant emissions per kilometer travelled. Prompt and effective action is needed: (a) to reducegrowth in vehicle emissions by imposing strict emission standards for new vehicles; and (b) to "rollback" the emission levels of vehicles of the existing fleet through measures such as inspection andmaintenance (I/M), retrofitting emissions controls, reformulation of fuels, conversion to alternativefuels, accelerated retirement, and replacement with new, emission-controlled vehicles.
1.18 Vehicle Emission Standards. Responsibility for issuing and enforcing new-vehicleemission standards lies with the recently created Ministry of Social Development (SEDESOL) whichhas assumed the functions and powers of the Ministry of Urban Development and Ecology (SEDUE)which has ceased to exist (para. 1.32). New passenger cars and light-duty trucks sold in Mexico havebeen subject to emission standards since 1975, but only in 1991 did these standards become stringentenough to require catalytic converters. Model years 1991 and 1992 represent a transition period, withan intermediate standard; compliance with Mexican 1993 model year standards will require vehiclesto be equipped with three-way catalytic converters and computerized engine control systems.Emission standards for new medium- and heavy-duty gasoline vehicles have not yet been issued, sothat emissions from new vehicles in these groups are effectively uncontrolled (except for minibuses inthe OF, which are being equipped voluntarily with catalytic converters under a 1991 agreement withthe DDF). The diesel engines used in buses and heavy trucks are subject only to a smoke opacitystandard. Unit emissions from these heavy-duty vehicles are relatively high.
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1.19 The declared policy of the Mexican Government is to move toward full compatibility withU.S. emission standards for both light- and heavy-duty vehicles. The Mexican 1993 exhaust emissionstandards for light-duty vehices are numerically equal to those presently in force in the U.S., but arenot identical, as the U.S. standards include many provisions such as evaporative emissions,compliance over the useful life of the vehicle, emissions warranties, recall of non-complying vehiclesetc., which have not yet been incorporated In the Mexican regulations. The Mexican Authoritiesintend to adopt these other elements of the U.S. regulatiori, as well as regulations covering medium-and heavy-duty vehicles, during 1992 and 1993. The proposed project would support these efforts(para. 2.11).
1.20 Inspetion lMMal 7The Mexican Authorities enacted vehicle inspection andmaintenance (a/M) requirements in 1988. However, until recently the system design left the pass-faildecisions to individual mechanics. TLis approach has been found to result in a very high percentageof improper inspections in the U.S.. The Mexican Authorities, as a temporary measure, haverecently begun requiring taxis and minibuses to be inspected in one of the 13 public stations operatedby the DDF, using new computerized emissions analyzers to make the pass/fall determination.Concessions have also been issued for 24 high-volume, inspection-only facilities known as"Macrocentros' which will also incorporate computerized emission analyzers. All high-usecommercial vehicles in the MCMA and Government vehicles in the DF will be required to beinspected in these facilities when they begin operation in January 1993. Private cars could also usethese facilities. Private garages inspecting private cars only will be required to use computerizedanalyzers beginning in January 1993, and will also be subject to stepped-up surveillance andenforcement activities. Steps to improve mechanic training and quality of repairs, especially for newhigh-technology vehicles, are also being developed. Financing for improved inspection equipment,oversight facilities, and mechanic training would be provided under the proposed project (para. 2.12).
1.21 GasolineiPdng. Gasoline pricing is determined by the Government. Until November1991, retail prices of leaded (Nova) and unleaded (Magna Sin) gasoline were set at 710 and 1,000Mexican pesos pc. liter, respectively (equivalent to US$0.87 and US$1.22 per gallon respectively).The large price differential encouraged misfueling of catalyst-equipped vehicles with leaded gasoline -a practice which destroys the effectiveness of the catalyst. In November 1991, the Government raisedthe prices of leaded and unleaded gasolines by 55% and 25%, respectively - bringing them to 1,100and 1,250 Mexican pesos per liter (equivalent to US$1.34 and US$1.52 ptr gallon). In April 1992the price of Magna Sin was adjusted downward slightly to 1,220 Mexican pesos per liter, equivalentto US$1.49 per gallon. The price differential has thus been reduced from 290 (40%) to 120 Mexicanpesos (11%).
1.22 Results from a recent survey carried out in the MCMA by independent consultants showdetectable levels of lead in the tailpipes of 12% of the catalyst-equipped private vehicles sampled, and13% of the public transport vehicles. In the same survey, 28% of the owners of non-catalyst vehiclesreported reverse misfueling, use of Magna Sin in vehicles that do not require unleaded gasoline.Shortages of Magna Sin have been a problem, 37% of private car drivers and public transportoperators stated that they had problems finding Magna Sin. The reported supply shortfall may havebeen a significant factor for the present misfueling rates.
1.23 Both misfueling and reverse misfueling are undesirable. Misfueling damages the catalystand oxygen sensor in modern emission-controlled vehicles, permanently increasing emissions.Reverse misfueling is wasteful, since non-catalyst vehicles do not require it, and Magna Sin is more
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expensive than Nova to refine. It is also undesirable from an environmental standpoint, as Magna Sin(in order to achieve the higher octane specification) contains a higher fraction of aromatichydrocarbons than Nova. These compounds contribute to ozone xormation, and some (e.g. benzene)are also carcinogens. Reverse misfueling on a large scale would also reduce the effectiveness ofgasoline reformulation strategies aimed specifically at older vehicles, which would otherwise be anattractive option for emissions control. Finally, since Magna Sin supply is limited in the short-term,large-scale reverse misfueling may lead to shortages, and therefore cause catalyst-equipped vehicles tobe misfueled.
1.24 Based on the above findings, it will therefore be necessary to adopt gasoline pricing andother policies which strike a balance between misfueling, reverse misfueling, and Magna Sinavailability. First priority in this balance should be given to ensuring Magna Sin availability. Thismay require the maintenance of a small price differential between Nova and Magna Sin, whilemeasures are taken to minimize the resultant misfueling through public information campaigns andincreased enforcement via the I/M program. Magna Sin availability should be monitored closely, andperiodic surveys be conducted of misfueling and reverse misfueling rates in order to guide thesepolicies. Agreement was reached during negotiations that the Government would: (i) provideunleaded gasoline sufficient to meet demand in the MCMA throughout project implementation; (ii)ensure that the rates of misfueling of catalyst-equipped private and public transport vehicles in theMCMA do not increase from the present level; (iii) make its best efforts to reduce such misfuelingrates and to resolve any problems of reverse inisfueling; (iv) cause the CMPCCA to carry out,through independent consultants and under terms of reference satisfactory to the Bank, an annualsurvey of the availability of unleaded gasoline and the extent of misfueling and reverse misfueling inthe MCMA; and (v) make the results of the surveys available to the Bank for the annual reviews(paras. 2.90 and 3.1(a)).
1.25 Fuel Standards and Formulation. Change,s in fuel formulation can affect vehicleemissions. Responsibility for setting and enforcing fuel standards lies with SEDESOL. SEDESOLand PEMEX are reviewing possible changes in gasoline specifications, including changes in volatilityand distillation characteristics. PEMEX has already taken an active role in reformulating fuels toreduce emissions by reducing the lead content of leaded gasoline and the sulfur content of diesel soldin the MCMA, and by blending 5% methyl tertiary butyl ether (MITBE) into gasoline to reduce HCand CO emissions and to supply additional octane in place of some of the lead. Major investments ingasoline refining facilities to allow gasoline reformulation and increased production of unleadedgasoline are under way, with financing provided by the Export-Import Bank of Japan under a"broadened" cofinancing agreement with the Bank. As part of the environmental assessment for thisproject, PEMEX is sponsoring a study to evaluate the effects of changes in gasoline formulation,including the reduction in vapor pressure, on emissions in order to identify the best and most cost-effective ways to reformulate gasoline to reduce emissions in the MCMA. PEMEX has agreed toimplement the study recommendations. Under the cefinancing agreement, the Bank is supervising thePEMEX study, as well as monitoring the consistency of the entire program (para. 1.69). In addition,the Overseas Economic Cooperation Fund of Japan (OECF) is funding investments which wouldenable the sulfur content of diesel and fuel oil to be reduced.
1.26 Gasoline Vapor Recovery. The storage, transportation and marketing of gasoline resultin substantial hydrocarbon emissions in the form of gasoline vapors. These can be prevented throughthe addition of floating lids to storage tanks, and the use of vapor recovery systems. The installation
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of gasoline vapor recovery systems in the MCMA would be supported under the proposed project(para. 2.18).
1.27 Electrid The MCMA passenger transport system already makes considerable use ofelectric traction for metro, trolleybuses and light rail. The electricity is generated both inside andoutside the Valley of Mexico, primarily by power stations using either natural gas or residual oil asfuel; and is a source of NOx and SOx emissions in the MCMA.
1.28 Alternative Fuels. Potential "clean" alternative fuels for the MCMA include LPG andCNG. Both are available in quantities sufficient to support large numbers of vehicles. Some 125,000vehicles already use LPG in Mexico, of which about 8,000 are in the MCMA. The CMPCCA hasestimated that available LPG supplies could fuel another 100,000 high-use vehicles by 1995, whileavailable CNG could fuel 44,000 vehicles. Conversions of high-use vehicles to LPG or CNG wouldbe supported under the proposed project (para. 2.15).
C. Legal and Institutional Framework
leal Framework
1.29 The General Law of Ecological Balance and Protection of the Environment, enacted inMarch 1988, constitutes the present legal framework to deal with transport air pollution in theMCMA. The law assigns a lead role to SEDESOL (in collaboration with other Federal Secretariats)in formulating environmental policy and in setting national standards and norms, and makes the Statesand the DDF responsible for implementation, except for the control of industrial air pollution in theDDF, which remains a responsibility of SEDESOL. Mexico's enviromnental legislation is essentially"command-and-control" in nature, with limited market-based incentives. However, the recentincrease in gasoline prices indicrtes a willingness to place greater reliance on market-based incentives.On this basis, the legal framework can be considered to constitute a reasonably adequate frameworkto deal with transport air pollution and other environmental problems.
Institutional Framework
1.30 The planning and implementation of a program to control transport air pollution in theMCMA is greatly complicated by the fact that the problem has national, regional and local aspects.As a result, a multitude of Federal, State and Municipal agencies are involved in policy making andeffective implementation and coordination is difficult to achieve. Since the MCMA includes both theDF and 17 municipalities in the State of Mexico, and air pollution originates in, and affects the entireValley of Mexico, the problem is regional in scope, requiring common action across jurisdictionalboundaries. Such areas as vehicle inspection, traffic management and public transport, for example,are the responsibility of individual agencies of the DDF and SoM, and in some cases of MunicipalAuthorities.
1.31 National Level Institutions. At the national level, the National Institute of Ecology(INE), which is a dependency of SEDESOL sets fuel and vehicle emission standards in coordinationwith the Ministries of Transport and Communicatins, Industry and Commerce, Health, and withPEMEX, the Federal Power Commission (CFE) and the Federal District Department (DDF). The
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Ministry of Finance and Public Credit (SHCP) plays a key role in decisions on investment and the useof external credit.
1.32 At the end of May 1992, Mexico's Congress approved a series of changes of the Law ofFederal Public Administration, proposed by the President. As a result SEDUE was transformed intoa powerful Ministry of Social Development (SEDESOL), which will be responsible for the executionof the Government's poverty alleviation program "Solidarity," and other social and regional programsin addition to assuming SEDUE's responsibilities in the areas of urban development, housing andenvironmental policies, standards and norms. The formulation of environmental policies and thesetting of standards and norms, for which the Sub-Secretariat for Ecology (SE) of SEDUE had beenresponsible, are to be carried out by INE, a dependency of the new Ministry, which is to betechnically and administratively autonomous. The enforcement of measures to control industrialpollution in the DF is to be the responsibility of a newly created Office of the Federal GeneralCounsel for Environmental Protection (PFPA), which will also be an autonomous dependency of thenew Ministry. While responsibility for the administration of the national parks and the execution ofprograms to reduce water pollution has been transferred to the Ministry of Agriculture and WaterResources (SARH), and the preservation of maritime species to the Ministry of Fishing, SEDESOLwill continue to be responsible, through INE for setting fuel quality and vehicle emission standardsand assisting the DDF and SoM in enforcing them as well as for the operation of the air qualitymonitoring system in the MCMA. Under the new law, the staff and budgetary allocation of SEDUEhave been transferred to SEDESOL, except for those functions transferred to other Ministries. It alsospecifically provides that SEDESOL is to assuvme the functions of SEDUE on various Commissions,such as the recently created Commission for the Prevention and Control of Environmental Pollution inthe Metropolitan Area of the Valley of Mexico (CMPCCA).
1.33 Metroolitan AirQ uality Instituffons. Prior to January 1992, no permanentmetropolitan agency existed, capable of taking an overall view of MCMA air quality, and of planningand guiding implementation of a long-term program. Having regard to past difficulties in makingmetropolitan or regional commissions effective, the present administration concluded that coordinationbetween the DDF, SoM, SEDUE and other Federal agencies could best be promoted through aninformal institutional arrangement. Under this arrangement, the DDF took the lead in planning theprogram, the creation of new bureaucratic structures was avoided, and private sector expertise wasused extensively. In response to a specific mandate from the President, the Mayor of the DF initiatedpreparation of an air pollution control program for the entire Metropolitan Area, and appointed asenior official as General Coordinator to lead the task. Two inter-governmental groups were formedin 1989 to help develop the program: a Steering Committee, consisting of senior officials of the DDF,SoM, SEDUE, appropriate Federal Ministries, PEMEX, IP and CFE; and a Technical Secretariat,consisting of staff members of these same agencies, working on a part-time or temporary basis.Preparation of the program was a collaborative effort of the Technical Secretariat and teams of localand foreign experts, directed by prominent Mexican consultants. These arrangements workedrelatively well for program preparation but, to ensure effective implementation and sustainability ofthe program, institutional arrangements needed to be strengthened and made permanent.
1.34 Taking these considerations into account, on January 6, 1992, the President issued aDecree creating a new, permanent CMPCCA. Under a subsequent agreement between the CMPCCAand the SoM, the Governor of the SoM has become a permanent, voting member of the CMPCCA.The objectives of the CMPCCA are to definte and coordinate the policies, programs and projectswhich the various public agencies are to carry out to control environmental pollution in the MCMA,
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and to mo3nitor their implementation. The CMIPCCA has responsibilities for the prevention andcontrol of all aspects of environmental degradation, although its initial focus Is primarily on airpollution.
1.35 The CMPCCA comprises the SoM Governor and seven representatives of FederalGovernment agencies - the Secretaries of Finance and Public Credit, Energy, Transport, SocialDevelopment, Health, the Mayor of the DF and the Director General of PEMEX. When matters forwhich they are responsible are to be discussed, representatives of other agencies may participate inthe Commission's work: e.g. the Comptroller General; the Secretaries of Commerce and IndustrialDevelopment, and of Public Education; the Directors General of the Mexican Petroleum Institute(IMP), the National Water Commission and the National Power Commission; the heads of otherFederal agencies; and SoM municipalities.
1.36 The CMPCCA's key functions are to:
(a) define anti-pollution policies, programs, projects and actions to be carried out byFederal Government dependencies and entities in the MCMA, including thosedealing with environmental emergencies. The Commission Is to establishmechanisms to ensure effective coordination in these matters between entities of theFederal Government, the DDF, the Government of the SoM and its municipalities;
(b) establish criteria and guidelines to prevent and control pollution in the MCMA,spelling out the actions the public sector is to take and coordination arrangementsbetween the Federal Government, the DDF, the SoM and its municipalities,representatives of the "social" and private sectors, and affected interest groups andindividuals;
(c) give its views concerning programs, projects and budgetary allocations of FederalGovermnent entities and dependencies which involve pollution control measures inthe MCMA;
(d) propose to the relevant authorities actions to prevent and control environmentalemergencies in the MCMA;
(e) support environmental research, technological development and training programs;
(fl define mechanisms to secure resources to form a "Fund" to finance the programs,projects and actions approved by the Commission;
(g) evaluate periodically the implementation of the agreed actions and findings of theCommission; and
(h) carry out other actions related to the Commission's objectives, as directed by thePresident of the Republic .
1.37 The CMPCCA's Presidency will rotate every two years: the Mayor of the DF will presideover the Commission's activities initially; followed by the Governor of the SoM; and the head ofSEDESOL.
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1.38 The CMPCCA has an Advisory Council, consisting of representatives of the scientificcommunity, industrial associations, transport operators, environmental interest groups, the Presidentsof the Ecological and Environmental Commission and the Commission for Governmental Affairs ofthe Chamber of Deputies, and the Ecological Commission of the Representative Assembly of the DF,and other agencies.
1.39 The CMPCCA may constitute both permanent and temporary Working Groups on specificenvironmental problems. Each Working Group will be led by a group-chief who will prepare its planof work, schedule the group's working sessions and follow up to see to it that the agreed-upon actionsare taken.
1.40 The CMPCCA has a Technical Secretary, appointed for a two year term by the Presidentof the Republic. The Technical Secretary, appointed by the President in January 1992, is an officialwho is also the General Coordinator for Prevention and Control of Environmental Pollution in theDF. Besides preparing and submitting to the Commission the Annual Work Program, callingCommission meetings, following up on the Commission's agreed actions and reporting periodically ontheir implementation, the Technical Secretary is to:
(a) prepare programs and projects, and obtain and administer grant, loan and budgetfunds to support anti-pollution strategies and actions;
(b) ensure that the resources of the Commission's "Fund' are used in an effective andtimely manner to support the programs, projects and actions which the Commissiondecides to support;
(c) coordinate the activities of Commission's Working Groups; and
(d) train technical personnel, specialized in the administration of environmental mattersin order to ensure the quality and continuity of actions to deal with pollutionproblems.
1.41 The CMPCCA does not have its own permanent staff. The administrative and technicalsupport for the CMPCCA and its Technical Secretary are provided by the DDF, in line with thePresidential Decree. To meet CMPCCA's requirements, the DDF has been reorganizing andexpanding its environmental management capability. Three entities now report to the DDF's GeneralCoordinator for Prevention and Control of Environmental Pollution: (a) the General Directorate ofEcology, which continues to be the DDF implementing agency for pollution-control measures; (b) theCoordinating Commission for Rural Development (COCODER), which coordinates rural development(including reforestation and soil conservation); and (c) a new General Directorate for EnvironmentalProjects (DGPA). The latter General Directorate constitutes the de facto Technical Support Team forthe CMPCCA and its Technical Secretary.
1.42 The DGPA has been assigned the budget resources needed to build up a technical staff ofabout 25 in the course of 1992 (15 were in-place as of June 1992). Disciplines to be covered include:environmental, automotive and industrial engineering; biology and chemistry; meteorology; legalaffairs; economics and finance; sociology; and public relations. DDF budget resources also areavailable to finance short-term consultants to assist the DGPA technical staff with specific activities.
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The DGPA is to be strengthened under the proposed project through financing of long- and short-termconsultants (para. 2.28).
1.43 Metropolitan Transport Institutions. Until recently, there was very little coordinationbetween the DDF and the SoM in the planning, coordination and supply of transport services. AMetropolitan Transport Council, COTAM, was formed in February 1991 by the Mayor of the DF,the Governor of the SoM and the Secretary of the Federal Ministry of Transport and Communications(SCT). The Council provides a framework for coordinated policy development and implementation.Ten working groups have been formed to address the most serious short-term jurisdictional conflictsaffecting primarily passenger transport throughout the metropolitan area, and to lay the basis forachieving, in the longer run, greater uniformity in the formulation and application of the normative,operational, technical and functional aspects of the public transport system. The working groups are:(1) legal aspects, (2) technical standards and safety, (3) operations, (4) fleet renewal and finance, (5)supervision and enforcement, (6) infrastructure, (7) energy and environmental protection, (8) freight,(9) short-term program, and (10) Transport Plan for the MCMA (PRETAM). Under the regulationsin effect until now, the presidency of COTAM, and of each working group has rotated every sixmonths between the three participating entities - DvF, SoM and SCT. In order to provide COTAMwith greater continuity, th- DDF, SoM and SCT have agreed on two important modifications: first,the presidency of COTAM is from now on to rotate every two years rather than every six months,with the DDF representative to become the first President of the Council with a twc year term;second, a full time, permanent Technical Secretariat is being established. This Secretariat would besupported under the proposed project (paras. 2.20 and 2.21).
1.44 DF Institutions. The key agencies in the DF involved .n transport air quality control are:the General Directorate of Ecology (DGE), in charge of the public and private vehicle testingprograms, the "Hoy no Circula" ("Day without a Car") program and the vapor recovery systems; thenew DGPA, which constitutes the de facto Technical Support Team for the CMPCCA; the GeneralDirectorate of Urban Automobile Transport (DGAU), which is in charge of vehicle registration andgrants driver, bus and taxi licenses; the General Directorate of Operations (DGO), which isresponsible for traffic management and traffic signaling systems; and the General TransportCoordinating Office (CGT) which regulates public transport and parking lots, and coordinates theoperation of the metro, bus and trolley bus systems.
1.45 SoM Institutions. The legal and institutional framework in the SoM dealing withenvironmental protection, and with the planning and implementation of public transport policies, hasundergone significant changes recently. Under the terms of a new State Law for EnvironmentalProtection, approved by the legislature of the SoM in November 1991, the powers and responsibilitiesof the Ecological Commission have been substantially expanded and more clearly defined. TheCommission, which was a dependency of the Public Works Ministry, has been transformed into aseparate State Secretariat (Ministry of Ecology (SE)), reporting directly to the Governor of the State -thus increasing its influence and coordinating power. The new SE has a 1992 operating budget ofUS$5 million, more than double the amount authorized for the Ecological Commission in 1991. TheSE, which has a staff of 66 (of which 30 have technical qualifications), has been authorized to expandits staff to 250 positions by the end of CY92. Of these, 45 will be administrators (including 25division chiefs), 146 technical staff (including 46 inspectors), and the rest support staff. The new SEand his assistants clearly face a formidable challenge in contracting and training 44 new inspectors tosupervise the State's industrial and mobile source pollution prevention and control efforts, and over
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70 additional technicians to work on expanded programs of air, water and soil pollution preventionand control (para. 2.50).
1.46 The new SE is in charge of suDervising vehicle emission inspection and the "Hoy nocircula" program. While the Ecological Commission contracted a private firm to supervise stationsinspecting private vehicles and delegated to COTREM (the SoM Transport Commission) responsibilityfor the inspection of public service vehicles, the new SE is planning to supervise the network ofprivate inspection stations with its own expanded inspection staff, beginning in 1993. Once fullystaffed, the iew SE's organization chart calls for some 20 qualified technicians tc work in ta area ofair pollution, in addition to 10-15 inspectors who are to supervise the operation of the I/M program,In close co-operation with the DDF General Directorate of Ecology. In case of need, the new SEwould have access to the consultancy resources being provided to the CMPCCA Technical SupportTeam under the proposed project (para. 2.29). The timely recruitment of the I/M inspsetors whichforms part of the implementation indicators (Annex 9), as well as t'eir performance, would bereviewed annually (para. 2.90).
1.47 As part of a recent reorganization of the State Secretariat for Urban Development andPublic Works, all aspects of public transport policy and the planning of transport investments are nowthe responsibility of the General Directorate of Highway Administration and Transport (DGVT/SoM),which is in charge of bus, minibus and taxi licenses, and the granting of bus route concessions.Security and Transport, part of the State Police, is in charge of private vehicle registration and,together with the municipalities controls traffic. Drivers' licenses are issued by the municipalities.
1.48 An assessment of the capacity of the above institutions to implement the Transport AirQuality Management program effectively is presented in paras. 2.40 - 2.57.
D. Human Resources
1.49 The Sub-Secretariat for the Environment of SEDUE (now INE and PFPA, which aredependencies of SEDESOL), the General Directorate of Ecology (DGE) in the DF and the EcologicalCommission in the SoM (now transformed into a State Ministry), which together are responsible forsettiDng and enforcing air pollution standards in the MfCMA, have until recently had very limited staffand operating budgets. At the end of 1990, only about 300 staff worked on air pollution in thesethree institutions, of whom about 80 had college degrees. The SoM had only 8 managers or techni-cians working on all aspects of pollution.
1.50 While recent actions to strengthen the technical capacity of public sector agencies arehelpful, private demand for qualified technicians is growing; public agencies will continue to havegrave difficulties in attracting and retaining such staff because of low salaries and hiring freezes. Theeffectiveness of both public entities and the private sector dealing with transport air pollution islimited by a general shortage of well trained, specialized staff. University and technical training inenvironmental science started only a few years ago and study programs are still weak, particularly inthe area of air pollution. Training of Mexican technicians abroad has partly compensated for theshortage of domestic training opportunities.
1.51 There is an urgent need to: (a) increase the supply of university trained scientists,specialized in environmental science, and (b) provide continuing, mid-career training to keep the staff
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of public and private institutions abreast of new developments. In both areas, effective programs areunderway and a number of promising new initiatives are under active consideration.
1.52 University-levol Training. In the area of university-level training, the most significantinitiA&ves are: (a) a plan to reinforce and expand the existing training and research program inEnvironmental Chemical Engineering and Chemistry at the School of Chemistry and Institute ofGeography of the National University of Mexico, with the technical and financial support of O1Z, theGerman Technical Assistance Agency. The program, which has had the support of SEDUE and theDDF, has until now focused on water and soil pollution as well as the treatment of industrial wastes.A plan to expand the program to cover air pollution, to be included as a sub-component of theproposed project, was prepared with GTZ technical assistance. While the Government was in accordwith its technical aspects, it preferred that it be considered as part of a more general approach toenvironmental training being developed by the CMPCCA and financed, if at all possible, frombilateral grant resources; (b) a proposal for the creation of an environmental researca and trainingcenter, which SEDUE had been discussing with the Japanese International Cooperation Agency; and(c) the creation of an International Center for Environmental Training at the University of Veracruz,under the leadership of an outstanding Mexican environmental scientist.
1.53 Nd-career Training. In the area of continuing training, SEDUE/SE had since 1987carried out a nation-wide training program, consisting of: (a) regional training courses for the staff ofState and Municipal governments, and SEDUE's State delegations; (b) seminars with the participationof foreign experts to acquaint public sector staff members with technical advances and developmentsin Mexico and abroad, and (c) training of SEDUE/SE staff both in Mexico and abroad, financed byinternational and bilateral donors. The program is to be strengthened and complemented through therecently approved Bank-supported Envirommental Project, which will finance: (i) the training of thestaff of SEDESOL (former SEDUE/SE) State delegations and of State agencies which are to assumeincreasingly the responsibility to evaluate and approve environmental risk assessments; (ii) in-servicetraining of new staff for six regional centers, which are to implement programs in 36 critical urbanareas, other than the MCMA, and (iii) training of consultants who are to be increasingly responsiblefor implementing SEDESOL's monitoring and auditing functions. DDF's General Directorate ofEcology has developed an original program with the National University to train students who fulfilltheir national service obligations by supervising the operation of the private T/M stations in the DF.
1.54 As noted previously, one of the key functions of the CMPCCA is to support environmentalresearch, technological development and training programs. Moreover, the Decree creating theCommission lists as one of the key tasks of CMPCCA's Technical Secretary the training of technicalpersonnel, specialized in the administration of environmental matters 'in order to ensure the qualityand continuity of actions to deal with pollution problems." Accordingly, the Commission's AdvisoryCouncil has been requested to give high priority to helping the Technical Secretary and the TechnicalSupport Team prepare an education and training program for the staff of the Technical Support Staffand the Staff of executing agencies in the DDF and SoM. Such a training program would encompassboth university level and mid-career training, focusing especially on various aspects of air pollutioncaused by mobile sources (para. 2.43).
1.55 Vocatonal Trainir. ,. General Motors and Volkswagen have started training programs,through the Mexican Manufacturing Association, for their local mechanics, so they will be able tomaintain and repair vehicles equipped with direct fuel injection and sophisticated emission controlequipment, with which they are not familiar. GIZ is developing a similar program for the inspectors
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and mechanics of the public and private inspection/maintenance a/M) stations in the MCMA, whichare to be modernized under the proposed project (para. 2.12).
E. The Government's Air Quality Strategy for the MCMA
1.56 Since 1988, air pollution control programs have been greatly expanded and given muchgreater political emphasis. An Emergency Air Pollution Control Program was put into effect in 1989and, in September 1990, the Mexican Authorities announced an expanded program, the 'IntegratedProgram Against Air Pollution in the Mexico City Metropolitan Area" (a revised version of thisprogram was issued in September 1991).
The Emergency Program
1.57 Measures instituted in 1989 under the Emergency Program included: (a) adoption oftighter vehicle emission standards, effective in model year 1991, with further tightening to equalcurrent U.S. standards in 1993; (b) "Hoy no Circula", a rotating one day/week driving ban, coveringone-fifth of the vehicles each weekday; (c) addition of 5% MTBE to gasoline to reduce HC and COemissions, and compensate for a reduction in gasoline lead content; (d) implementation of a vehicleinspection and maintenance program; (e) temporarily switching of oil-fired thermoelectric plants tonatural gas; (f) replacement of some 3500 bus engines with engines meeting California 1990 emissionstandards, and rehabilitation of these buses to improve their comfort, appearance, and mechanicalcondition; and (g) expansion and reinforcement of the air quality monitoring network.
1.58 The Government estimates that these measures (excluding the vehicle emission standards,which have only just begun to take effect) reduced total pollutant emissions in 1989 by about 22% ofwhat they would otherwise have been. No quantitative monitoring or evaluation of the effects ofthese measures has been carried out, however, and there is some reason to assume that the actualemission reductions achieved may be significantly smaller, since ozone and CO levels have continuedto increase despite the program.
The Integrated Program
1.59 The "Integrated Program Against Air Pollution in the MCMA", announced in 1990,comprises 41 specific measures (including continuation of measures taken under the EmergencyProgram), grouped into the following categories: (a) oil iindistry and fuels; (b) Tansport sector; (c)private industry and services; (d) thermoelectric plants; (e) reforestation and sanitary measures; and(f) research, education, and communication. Of these, the elements dealing with fuels, the transportsector, and research and training are most relevant to the proposed project. However, the othermeasures are also very important and the integrated nature of the program is a valuable characteristic.Progress in implementing the measures related to the transport sector has been satisfactory. Otheragencies and financial institutions are providing financial support for the non-transport-relatedmeasures. These include the Inter-American Development Bank (IDB) and the OECF. The totaldirect cost of the Integrated Program is estimated by the Government at US$4.7 billion.
1.60 Oil Industry and Fuels. The Integrated Program includes two types of measures: (a)changes in fuel composition to reduce pollutant emissions from other sources; and (b) changes in therefining and distribution infrastructure to reduce emissions from those sources. Measures of the firsttype include: supplying unleaded gasoline for catalyst-equipped vehicles, with funding being provided
1S
by the Export-Import Bank of Japan (para. 1.69); reformulating leaded gasoline to reduce pollutantemissions; desulfurization of diesel fuel and desulfurization of fuel oil, with financing provided byOECF (Japan). Measuros of the second type to reduce pollutant emissions directly include shuttingdown the refinery located in the MCMA, and the addition of floating roofs to fuel storage tanks andvapor recovery systems to filling stations to reduce emissions of hydrocarbon vapors.
1.61 Trn S . Transport-related emissions control measures include both steps toreduce pollutant emissions per kilometer travelled and steps to encourage use of public transport whilelimiting private car use. The measures in the Integrated Program include: new, catalyst-forcingemission standards for gasoline vehicles; replacement of high-use vehicles with new vehicles meetingemission standards; conversion of gasoline-powered cargo trucks to liquified petroleum gas (LPG) orcompressed natural gas (CNG), Incorporating catalytic converters; expansion and improvement of theinspection/maintenance program; continuation of "hoy no circula', and its extension to include taxi.and some public transport vehicles; improvements in parking and traffic management systems;expansion of the metro and electric surface transportation systems; and authorizatiorn of new privatebus routes.
1.62 Research and Training. The Integrated Program includes the follGwing measuresintended to develop data and analytical techniques needed for more effective air quality management,and to increase the supply of trained personnel to plan and execute air quality programs:establishment of a test program for vehicle emission controls and fuels; installation of laboratories tocheck fuel quality in the field; extension and reinforcement of the air quality monitoring system;development of the "Global Air Quality Study" by IMP, in cooperation with the U.S. Department ofEnergy's Los Alamos laboratory; implementation of an epidemiological study to evaluate the healthimpacts of air pollution in the MCMA; establishment of long-term relationships with universities andresearch centers; and environmental training and education for children, teachers, and professionals.
Assessment of the Government's Progm
1.63 The Integrated Program constitutes an important step forward in air pollution control in theMCMA. The proposed measures cover most of the significant air pollution sources and, If carriedthrough, should result in a substantial reduction in overall pollutant emissions. There remainssignificant room for further improvement, however, including: improvements to the scientific base(emissions inventory and air-quality models) to support detailed air quality planning; more completecoverage of emissions sources; better definition of air quality targets; explicit consideration of cost-effectiveness and the establishment of priorities; greater reliance on economic incentives; developmentof a policy framework to support the individual measures; improved planning for implementation andenforcement; monitoring and evaluation of effectiveness; and direct linkages with transport sectorinvestment and policy programs. Further development of the transport demand management strategyand assessment of the "Hoy no circula" program are especially urgent. Technical and financialsupport for addressing these issues would be provided through the proposed project (paras. 2.20 -2.24 and para. 2.30).
Twrd an Interted Transnort and Air Ouality Strategy
1.64 Because of its significance as the dominant contributor to air pollution, the transport sectordeserves major attention in any air quality str.ategy. In addition, the transport sector in the MCMAby itself has major problems which also must be addressed. Until now air quality and transport issues
16
have largely been dealt with in isolation and an integrated strategy for both transport and air pollutioncontrol is needed - one which would address both air quality and transport objectives, while recon-ciling the potential conflicts between them (e.g. the effect of major road construction on trafficgeneration and emissions). Tle Government's transport strategy for the MCMA focuses primarily ontraditional transport concerns, with little explicit consideration of air quality. With the developmentof the Integrated Air Quality Program, the creation of COTAM, and the new CMPCCA, the MexicanAuthorities have laid the foundation for a more integrated strategy, but much work remains to bedone. A Strategy Outline, consistent with the Integrated Program and the proposed project, ispresented in the updated summary of the Sector Report referred to above (Annex 1, Table 5). Due tothe ongoing policy dialogue during the sector work and project preparation, the Bank's and theGovernment's views of this strategy are now closely aligned. The Government's and the ExternalAdvisory Panel's comments on the Sector Report (see para. 1.2) have been taken into account In theupdated summary of the Sector Report. The proposed project would include financing and technicalassistance to prepare an integrated Transport and Air Quality Strategy, which is not Intended toreplace the individual sub-sector strategies being adopted or considered by the Government, but torefine, extend and unify them (paras. 2.20 and 2.21).
F. Relevant World Bank Experience
1.65 Transport air pollution control is a relatively new area for the Bank. While a number ofprojects have contained components dealing with transport air pollution issues, the proposed projectwill be one of the first Bank projects supporting a comprehensive approach to the problem. RelevantBank experiences in the pollution control and related sectors include:
(a) the Project Completion Report (No. 9495-ME) on the first 2Pollution Contoftect' in Mexico, for which Bank Loan 2154-ME was approved in July 1982;
(b) the Project Completion Report (No. 8685-ME) on the "Decentralization Progm f,rthe Mexico City Region", a preinvestment project, for which Bank Loan 2194-MEwas approved in August 1Q82;
(c) experience to date of the Bank-financed transport components of the MCMAEmergency Air Pollution Control Program, which was made possible by amendingin December 1989 the "First Urban Transport Project", for which Bank Loan2824-ME was approved in May 1987; and
(d) the Project Completion and Performance Audit Report (No. 7720-BRA) on the :aoPaulo Industrial Pollutio,l Control ProJect" in Brazil, for which Bank Loan 1822-BRwas approved in March 1980.
1.66 Ihe main lessons from these projects, presented in more detail in Annex 2, are that: (a)among the key preconditions for a successful vehicular pollution abatement program is the existenceof an adequate legal and regulatory basis and adequate institutions to plan, coordinate and implementthe prograiu; such institutions must be able to secure and retain the services of well trainedprofessionals and have secure sources of financing; (b) a regional planning institut.on, which lacksassured sources of financing, the authority to allocate investment resources, and the active support ofits members, is likely to be ineffectual and become irrelevant; (c) the success of an air pollutioncontrol program or project depends to a significant extent on the work of a well qualified Technical
17
Team, which coordinates implementation of all components on a full-time basis; and (d) the Bankshould be flexible in financing projects in this new field, which is subject to frequent technologicalchanges and to improvements in the underlying scientific base.
G. Applying the Lessons of Experience
1.67 The lessons derived from the review of relevant Bank experience have been taken intoaccount in helping to pi pare the proposed MCMA Transport Air Quality Management Project. TheBank's approach is based on:
(a) Strong emphasis on institutional strengthening. As noted in para 1.28 theAuthorities have transformed the former Air Quality Steering Committee andTechnical Secretariat into a permanent CMPCCA under a full-time TechnicalDirector. The project would include strengthening of the DGPA of the DDF, whichprovides technical support to the new CMPCCA, as well as to COTAM, which hasbegun efforts to develop an integrated transport and air quality strategy for theMCMA;
(b) Assured sources of funding. It is important that the activities of the new CMPCCAshould be sustained by assured sources of funding based, as far as possible, on the"polluter pays" principle. The Presidential Decree establishing the CMPCCA refersto the establishment of an Environmental Trust Fund. Such a Fund is being created(para 2.44) and would help to avoid some of the difficulties experienced during theDecentralization Program for the Mexico City Region, referred to in Annex 2;
(c) Linkage of regulations and Incentives. Under past projects difficulties wereexperienced because lines of credit established to finance vehicles and equiprmentwere not drawn down, largely because of inadequate linkage with environmentalregulations and policies. The proposed project would link the "carrot" of access tocredit with the "stick" of increasingly stringent regulations relating to vehicleemissions (para. 2.11);
(d) Making full use of the private sector. Taking into account the Government'spolicy to reduce the size of the public sector, and the limited technical capacity ofpublic sector institutions, key project components are to be constructed and/oroperated by private firms on a concession basis or through turn-key contracts. Thehigh-use vehicle modernization program would be financed in large part by theprivate sector. The proposed lines of credit (paras 2.60 - 2.64) would meetfinancing needs of private-sector taxi, minibus, bus and truck owners for thereplacement of vehicles, and of private garage owners for the purchase of inspectionequipment;
(e) Minimizing design risks. Risks are being minimized by: (i) basing the program andproject on preparation work by a team of international experts and on sector workcarried out by Bank staff and international consultants, (ii) supporting proventechnology, particularly benefltting from relevant experience in the U.S., and (iii)having the program and project reviewed within the Bank by an Advisory Panel as
18
well as by a special External Advisory Panel, comprising world class specialists intransport air pollution control; and
(f) Need for flexibility. Having regard to previous sector experience, and in view ofthe fact that some project sub-components are more fully defined than others, aflexible line of credit approach would facilitate allocations of funds in line withactual requirements.
H. Rationale for :3ank Involvement
1.68 As the Government's economic stabilization program successfully consolidates andprospects for sustained economic growth have increased, the Bank's lending str. tegy towards Mexicoattaches priority to poverty alleviation programs, rebuilding and expanding the country'sinfrastructure to permit private sector led growth and addressing environmental problems. Within theenvironmental sector, the Bank's support strategy is to assist the Government in strengthening theinstitutional and policy framework for the sector through free-standing projects and environmentalcomponents of other projects and to help assure that environmental factors are addressed ininvestment and policy decisions. A free-standing Environmental Project was approved in April 1992which principally addresses institutional issues b-, providing support to SEDESOL (INE and PFPA).The second free-standing project would be the proposed project to help alleviate the MCMA's seriousair pollution problem by addressing its principal cause, pollution from transport, and which would laythe basis for further Bank support in the area of air pollution control (para. 1.71). Assistance willalso be given to help Mexico meet its commitments under global environmental programs. The Bankas executing agency of the Global Environment Facility (GEF) has approved a pilot project under theMontreal Protocol and is about to netgotiate a second operation. These projects are designed toestablish an adequate policy framework and to provide the necessary resources to finance the phasingout of chlorofluorocarbons (CFCs) production in Mexico. In addition, the Bank is helping Mexicodevelop programs for addressing gases contributing to the greenhouse problem, the preservation ofbiodiversity, and the promotion of the use of energy- efficient lighting, with funds from the GEF.
1.69 The Bank is already contributing to the Emergency Air Pollution Control Program throughreallocation of resources from Loan 2824-ME (President's Memorandum, December 22, 1989), andhas participated in the development of the Integrated Program from its beginning. Moreover, theBank has signed a "broadened" cofinancing agreement with the Export-Import Bank of Japan, underwhich it is providing technical assistance concerning the environmental aspects of PEMEX's projectsto produce unleaded gasoline, (which are being financed by the Export-lmport Bank of Japan), andwill review the consistency of the overall Program. The loan agreement between the Export-ImportBank of Japan and NAFIN to finance PEMEX's projects to produce unleaded gasoline, contains across default clause. Under its terms the Export-Import Bank of Japan may suspend disbursements orcancel Its loan in case the proposed Bank loan for the Transport Air Quality Management Project hasnot become effective before June 30, 1993 or if the loan is cancelled or disbursements are suspended.The proposed Bank loan would contain a cross-reference clause to the effect "that, if the GasolineProject is not implemented, the World Bank may suspend disbursements under its loan." The cross-reference clause may be applied "upon suspension of any disbursement under, or cancellation of all ora portion of the loan made pursuant to the loan agreement between the Export-Import Bank of Japanand NAFIN, if the suspension or cancellation is based at least partially on Gasoline Project executiongrounds rather than solely on grounds not related to Gasoline Project execution." Agreement on thecross-reference clause was confirmed during negotiations (para. 3. l(b)).
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1.70 The urgent need for action to improve air quality in the MCMA, the evident commitmentof the Government to addressing the issue, and its demonstrated willingness and ability to take boldactions when necessary to improve air quali.y justify Bank support for the air quality program, despitesignificant risks. The Bank is well placed to assist the Government to take such a systematic planningapproach which, by its scale and complexity, the air quality problem in the MCMA requires. It canhelp develop a sustainable institutional arrangement for air quality ptanning and coordination with ametropolitan focus as well as the policy framework required for program development andimplementation. It can also lend assistance to help strengthen existing institutions charged withimplementing air quality programs.
1.71 Ideally, a Bank loan of the proposed nature should await the establishment of an adequatescientific base and environmental data and of a well developed policy framework, and support aprioritized implementation program based upon economic principles. However, having regard to theurgency and seriousness of the MCMA air pollution problems in terms of public health, socialdisruption and economic loss, a staged approach is proposed. The first stage - the proposed MCMATransport Air Quality Management Project - would include high-priority measures to reduceemissions levels compared to what they would otherwise be. The proposed project would also includethe preparation of policies to support more comprehensive measures (para. 2.21), to be implementedduring a second stage (e.g. a comprehensive public transport policy and related investments), togetherwith measures to improve the scientific base, in order to provide the foundation for any subsequentoperation in both areas of mobile and stationary source, of air pollution. The justification for thecredit lines under the proposed project is provided in para. 2.63.
It. THE PROJECT
A. Origin of the Project
2.1 In early 1989, the Government of Mexico requested the Bank to support an urban transportproject for the MCMA. Subsequently, the Government further requested that the Bank's supportshould be targeted toward addressing the increasingly serious problems of transport air pollution inthe city. In order to provide an immnediate response, and in view of the gravity of the problems,funds were reallocated from the First Urben Transport Project in support of the Government'sEmergency Program (para. 1.69). At the same time, the Mexican Authorities initiated the preparationof a free-standing project, under the leadership of the DDF. The proposed project is based on thepreparation work carried out by the DDF and its team of Mexican and international consultants andthe Bank's extensive sector work.
B. Project Rationale
2.2 The top priority of the proposed project is to help contain air pollution in the near term.Technical studies during project preparation and sector work have indicated that this objective couldbe achieved best through investment in vehicle- and fuel-related measures, in conjunction with theapplication of appropriate policies relating to: (a) vehicle emission standa;ds; (b) vehicleinspection/maintenance (a/M); (c) vehicle fleet renovation; and (d) travel demand management.
2.3 The definition of increasingly stringent vehicle emission standards (para. 2.11), suitable forall vehicle categories in ;JICMA conditions (for both new and in-use vehicles), and the existence of an
20
effective vehicle I/M system, are necessary conditions to achieve substantial vehicle emissionsreductions. These elements are therefore central to the proposed project and would "force" theprogressive modernization of the MCMA vehicle fleet to meet air quality targets. In parallel, themodernization of high-use vehicles would be encouraged through the provision of lines of credit(paras. 2.13 - 2.16) for: (a) vehicle fleet replacement, (b) conversion to LPG or CNG, and (c) re-engining and retrofitting with emission-control equipment. These credit lines are designed to meet theneeds of individuals and small enterprises with limited access to credit.
2.4 Parallel investments in fuel processing facilities are being undertaken by PEMEX, under abroadened co-financing agreement between the Export-Import Bank of Japan and the Bank (para.1.69). The proposed project would include a vapor recovery program and assistance to speed up theconversion of minibuses, buses and trucks to LPG or CNG. No investments in transportinfrastructure are included in the proposed project in view of continuing uncertainty over the airpollution impacts of major road construction when the traffic generation effects are taken intoaccount, and pending assessments of major public transport investments which would take intoaccount air quality and developmental benefits, in addition to traditional transport benefits.
2.5 Among the important policy issues to be addressed under the proposed project are: (a) theavailability of unleaded gasoline and the extent of misfueling and reverse misfueling; (b) reduction ofemissions from the existing vehicle fleet (e.g. through incentives to remove or scrap old, highly-polluting vehicles); (c) the need to develop more effective demand management procedures, in orderto adapt and eventually to supersede "Hoy no Circula"; and (d) the develorment of a coherentTransport and Air Quality Strategy, and full incorporation of air quality criteria into transport sectorinvestment planning and management.
2.6 Given the lack of knowledge about many aspects of air quality in the MCMA, an improvedscientific base is necessary for improving air quality planning and management, and the proposedproject would therefore incorporate an important research component.
2.7 Finally, sustainable improvements are unlikely to be possible without devoting substantialattention to institutional strengthening and to human resource development. The CMPCCA TechnicalSupport Team would be strengthened through the provision of technical assistance, and would supportexecuting agencies in the DF and SoM. CMPCCA with the assistance of its Advisory Council willdevelop a training program for the staff of its Technical Support Team and of the executing agencies.The Bank would review progress in preparing and implementing the program, as part of the annualreviews (paras. 1.54 and 2.43).
C. Project Objectives
2.8 The objectives of the proposed project would b to support a comprehensive program toreduce air pollution in the MCMA through measures to:
(a) reduce the growth of emissions of nitrogen oxides (NOx), volatile organic compounds(VOC), carbon monoxide (CO), lead, and of particulate matter from transport sources;
(b) develop a policy framework to support both transport and air quality objectives;(c) improve the scientific base underlying the air quality program development and
management; and
21
(d) strengthen institutional capabilities to effectifely plan and implement air-quality progrmover the long-term.
D. Project Description
2.9 The proposed project would include five inter-related components for:
(a) Vehicles (paras. 2.10 - 2.17);(b) Fuels (paras. 2.18 and 2.19);(c) Transport policy and management (paras. 2.20 and 2.21);(d) Scientific base (paras. 2.22 - 2.26); and(e) Institutional strengthening (paras. 2.27 - 2.30).
Vehicle Component (USS1.030.6 million in total pro3ect cost)
2.10 lhis component would include: (a) support to develop, promulgate and enforce emission stan-dards for new vehicles; (b) progressive improvements to in-use emission standards, and inspectionprograms for high-use vehicles and private cars; and (c) replacement of old, high-use vehicles (taxis,trucks and minibuses) with new, emission-controlled vehicles, conversion of high-use vehicles to LPGor CNG, and re-engining and retrofitting with emission controls (e.g. catalytic converters).
2. 11 Emission Standards Sub-component (US$7.7 million). Ihis sub-component would includethe development, promulgation and enforcement of vehicle emission standards, and specification of alaboratory for SEDESOL:
Emission Standards Development (USS3.0 million). Various new emission standards areurgently needed for the vehicle fleet modernization program to be effective. This sub-component would support SEDESOL through INE in developing and promulgating vehicleemission standards during 1992-1994 by financing consultant assistance, contract laboratorystudies, and related needs. Regulations to be developed would include: (a) heavy-duty dieselengine emission standards (to be issued by the end of 1992, with revised standards to be issuedby the end of 1994); (b) standards for minibuses and medium-duty vehicles, including CNGand LPG vehicles (to be issued by the end of 1993); (c) regulations for manufacturers' liabilityfor emissions durability, warranty, and in-service compliance (to be issued by the end of1993); and (d) evaporative emission standards (to be issued by the end of 1993). Fuelstandards would be reviewed and, if appropriate, revised regulations issued. The terms ofreference for the proposed technical assistance and laboratory testing were reviewed by theBank and found satisfactory. Progress in the emission standards development would bereviewed during the annual reviews with the Bank and agreements would be reached onfollow-up actions as necessary (Annex 3).
Emission Standards Enforcement llSS4.7 million) . By the end of 1993. SEDESOL thdroughINE is scheduled to adopt regulations requiring that vehicles meet emission standards in-service over their full useful lives. Vehicle models which consistenty fal to meet emissionstandards when tested in the field may be subject to recall, and their manufacturers may besubject to sanctions. In order to enforce this requirement, SEDESOL through INE wouldneed to carry out a program of surveillance testing of vehicles in-service. This surveillance
22
program would also provide valuable data on vehicle emission factors. SEDESOL's presentemissions laboratory is limited to testing only exhaust emissions from light-duty vehicles.Although the Government has indicated its intention to develop a more complete laboratorycapability, this new laboratory will not be available for some time. To enable enforcementactivities to proceed in the meantime, financing would be provided for: (a) emissions testingbeyond SEDESOL's present capacity by outside laboratories; and (b) preparation of thetechnical specifications, bid documents and cost estimates for a fully-equipped emissionstesting laboratory for SEDESOL to enforce emission standards and carry out research onvehicle emissions and fuels. The terms of reference for the proposed technical assistance andlaboratory testing were reviewed by the Bank and found satisfactory. Progress in the emissionstandards enforcement would be reviewed during the annual reviews with the Bank andagreements would be reached on follow-up actions as necessary (Annex 3).
2.12 Insaection and Maintenance (I/M) Sub-component fUss34.2 million). The existing vehiclel/M systems in the DF and the SoM would be upgraded with more effective test procedures,increased stringency of oversight, and measures to increase the precision and reliability of testing.
High-volume Inspection Stalions (USS13.4 million). High-volume vehicle inspection-onlystations, comprising a minimum of 54 test lanes in total, would be constructed, financed andoperated by the private sector under licenses to be issued on a competitive basis by theDDF/DGE and the SoM/SE. The licenses would specify inspection requirements, and wouldalso provide for the DDF and the SoM to implement improved procedures in the future.During negotiations agreement has beeb confirmed that, beginning in January 1993, all high-use vehicles registered in the MCMA, and Government vehicles registered in the DF, wouldbe required to be inspected either at one of these stations or at one of 13 DDF-run inspectionstations; private cars could also use these stations (para. 3.1 (c)). The stations would beequipped to inspect gasoline, diesel, LPG and CNG powered vehicles. The technicalspecifications and test procedures of the stations were reviewed by the Bank and roundsatisfactory. Inspection performance would be reviewed during the annual reviews with theBank (para. 2.90).
Computerized Emission Testng and Diagnostic Eupment for Private Garage (US_16_nillion). Existing private-garage inspection stations in the MCMA would be required toupgrade to advanced, fraud - resistant computerized emissions analyzer systems by January1993, and would be subject to rigorous training and licensing requirements, and improvedoversight. During negotiations agreement has been confirmed on the upgrade of the existingprivate-garage inspection stations in the MCMA by January 1993 (para 3. I(d)). A line ofcredit would be available to private garage owners to finance the purchase of up to 300computerized emissions analyzers and other emissions measurement and diagnostic equipment(para. 2.60).
IM Monitoring and Enforcement (USSO.5 million}. A computer center to supportmonitoring and enforcement of the I/M program will be set up and operated by the DGE.Through an agreement with the SE, this center will process data from both the DF and theSoM. Tbe center will read the data disks containing IIM test records from the private garagesand high-volume inspection centers, and will carry out statistical and other analyses to support:(a) monitoring and reporting on the program; and (b) identification of test centers showingsuspicious activity patterns (e.g. very low failure rates). These latter reports will be used to
23
target undercover and overt enforcement activities by the DOE and SE. The proposed projectwould finance equipment, including computer hardware and software for the DGE.
MIM Program Assessment and Development (US$2.6 milllon). In order to assess theeffectiveness of the I/M program in reducing vehicle emissions, a continuing program oflaboratory emissions testing would be carried out by contractors on behalf of the CMPCCATechnical Support Team. Work would include: (a) reviewing the effectiveness of I/M testsand inspection procedures in identifying high-emitting vehicles; (b) analyzing the extent towhich the repairs required under the I/M program actually reduce emissions; and (c) extensionand updating of in-use vehicle emission standards (including heavy-and medium-duty gasolineand diesel vehicles). The test program would also evaluate the relative effectiveness ofalternative I/M procedures, such as steady-state loaded mode testing, and the U.S. EPA's I/M240 test (as it becomes available). The results of the test program would be used to updateI/M test procedures and standards, having regard to the distributions of actual vehicleemissions for each category, and to the likely public acceptability of anticipated failure rates.The proposed project would finance contractor operations over two and one-half years,commencing in 1994. The terms of reference for technical assistance and laboratory testingwere reViewed by the Bank and found satisfactory. Progress in the I/M program assessmentand development would be discussed during the annual reviews with the Bank and agreementswould be reached on follow-up actions as necessary (Annex 3).
Supervisory Consultant (US$0.4 million). A consultant experienced in the design andimplementation of I/M systems would be retained by the DGE tc supervise programimplementation and operations over a two and one-half year period. The terms of referencefor the consultancy services were reviewed by the Bank and found satisfactory, and a contracthas been signed with the consultant. The I/M systems performance would be reviewed duringthe annual reviews with the Bank (Annex 3).
Inspector/Mechanic Training Program (US$0.8 million). A training program for VMinspectors and mechanics would be set up by the Association of Inspection Stations, inconjunction with the Training Institute of the Construction Industry (ICIC), with technicalsupport from the GTZ. The cost of setting up the program would be advanced from a trustfued maintained by the Association of Inspecting Stations, and would be repaid through tuitioncharges. The training would cover the inspectors and mechanics of both the public and privateinspection stations in the whole MCMA. The training would be carried out over a two yearperiod by a series of courses at two levels: (a) a basic course in inspection (40 hours); and (b)a more advanced course in inspection and maintenance (40 hours). Approximately 1,500inspectors and mechanics are expected to attend both courses. A university would administerthe final course tests, and every inspector would be tested annually. Each test station wouldbe required to employ at least one inspector who had completed the two courses andsubsequent annual tests successfully; otherwise the station would lose its operating license.The proposed project would support staff, equipment, technical assistance and teaching staff.The curriculum and program performance would be reviewed annually with the Bank, GTZ,and the Mexican Authorities (para. 2.90).
2.13 MIg-use Vehicle Fleet Modernization Sub-component (USS988.0 million). This sub-component, which would be largely financed by the private sector, aims to strengthen the CMPCCAprogram outlined below. Bank financing would be provided to speed the modernization of the high-
24
use vehicle fleet through provision of lines of credit to finance: (a) replacement of old high-usevehicles with new, emission controlled vehicles; (b) conversion of gasoline and diesel-poweredvehicles to LPG or CNG; (c) re-engining existing vehicles with modem technology gasoline or dieselwhich meet new emission standards; and (d) retrofitting vehicles with catalytic converters. TheCMPCCA high-use vehicle fleet modernization program for the MCMA is based on the followingpolicies to be fully implemented by January 1, 1993 (para 2.16):
(a) no taxi operating in the MCMA should be more than six years old;(b) no public passenger transport vehicles (combis; minibuses; buses) should be more than
nine years old for fixed-route services and no more than seven years old for non-fixed-route operations;
(c) no own-account passenger vehicles should be more than 15 years old;(d) no own-account trucks (servicio mercantil de carga) should be more than 15 years old;
and(e) no trucks used for common carrier operations (servicio pdblico de carga) should be more
than 15 years old.'kill
2.14 Provided a high-use vehicle meets the relevant age criterion, it would be for itadwner todecide which technical measure (replacement, conversion, re-engining or retrofitting) to adopt inorder to meet the prevailing emission standards (para. 2.11). Individual decisions will depend on thestate of the vehicle, its operating pattern, profitability in its business sector, availability of funds, andother factors. Under this sub-component lines of credit would be provided which would be availableto private owners of high-use vehicles, subject to meeting emission and safety standards.
2.15 Below .is a description of the fleet modernization sub-component of the project whichwould support the CMPCCA program. A more detailed description of the sub-component is given inAnnex 4.
x A taxi fleet modernizatio.r,,.,un for the MCMA was launched by the MexicanAuthorities in 1991. In the DF, the objtimive is to replace all taxis more than 6 years old withnewer vehicles. In the SoM, the ctirt ac policy is to replace all taxis more than 10 years oldwith newer vehicles. When the program was introduced, some 93% of the fleet in the DFwas 1985 vehicles or older, indicating that some 55,000 vehicles would have to be replaced.Between April, 1991 when the replacement program was announced and mid- Fabruary, 1992,the number of taxis 1985 and older had been reduced from about 55,000 to 38,400 and thenumber of taxis 1986 and newer had been increased from a little over 4,000 to some 20,700vehicles, of which 7,919 were new vehicles. The aim of the Govermnent is to facilitate on-going fleet renewal so that no MCMA taxi would be more than 6 years old, and the SoMwould be required to amend its policy in this regard by January 1, 1993 (para. 2.16). As aresult, an additional 8,000 taxis would need to be replaced with newer vehicles. It isanticipated that, consistent with the six-year replacement policy, about 25,000 taxis would bereplaced over the project period (1993 to mid-1996), of which an estimated 8,000 would befinanced under the project line of credit, 2,800 from subloans financed from loandisbursements and an additional 4,700 from subloan repayments (reflows) (para. 2.73). Taxisfinanced under the project line of credit would be new vehicles meeting Mexican emissionstandards for model year 1993 and onwards (i.e. equipped with catalytic converters andcomputerized engine management) (para. 2.16). Replaced taxis more than six-years old could
25
not be used as taxis elsewhere in the MCMA, but could be used as private vehicles, which areless intensively used and are thus less polluting.
Trucks. There are an estimated 200,000 gasoline trucks operating in the MCMA, makingthem the second laigest mobile source of air pollution, after passenger cars. There are soms18,400 common carrier (third party) trucks of which about 9,700 are models 1976 and olderand will need to be replaced under the CMPCCA program. An estimated 6,000 are expectedto be replaced during the project period of which some 2,350 are expected to he financed by aBANOBRAS credit line (including reflows). There are an estimated 127,000 own accounttrucks of which some 18,700 will need to be replaced. An estimated 10,000 of these wouldbe replaced during the project period. A NAFIN line of credit (para. 2.60) would finance anestimated 4,500 new units (including reflows). Trucks older than 15 years could not continueto be operated in the MCMA, but could be used outside the area.
Trucks - Emission Control Conversion. The Government formulated a program in February1992, which has as its objective the conversion of some 129,000 freight vehicles which are1977 or newer to LPG or CNG between 1992 and 1997. About 72,000 of these conversionsare expected to be carried out during the project period. A NAFIN line of credit (para. 2.60)would finance about 11,400 conversions (re-engining and retrofitting could also be financedonce respective credit sub-components have been prepared by NAFIN, but these investmentsare expected to be financed by sub-loan reflows).
Minibuses and Buses. There is a rising trend towards the purchase and use of minibuses inboth the DF and the SoM because of their cost and operating characteristics. In view ofuncertainties concerning both the economic implications of this tendency and its impacts on airquality, the proposed project would support a study by COTAM (Annex 3) to define the futureroles of different bus types (e.g. size, motive power), taking into account their respectiveemission factors, the cost-effectiveness of emission reductions, impact on traffic congestion,and the likely socio-economic and financial viability in their intended markets (included in theterms of reference for the transport and policy and management in study) (para. 2.20). Inview of the urgent need to reduce emissions, and the continuing need for fleet renewal, theproposed project would initially finance the replacement of existing vehicles by new, emission-controlled vehicles, on a one-for-one basis, in those cases in which emissions would bereduced, and future policy options would not be unduly prejudiced, namely: (a) one newminibus for one old combi (current DDF policy); and (b) one new minibus for one oldminibus. DDF policy is to increase the minibus fleet from 18,000 to 25,000 units, of whichabout 3,000 would be acquired during the period project. It is anticipated that a project lineof credit would finance 850 minibuses in the DF under the CMPCCA program. It isimpossible to estimate the demand for buses until an appropriate public transport policyframework has been developed; upon completion of the transport policy and managementstudy (paras. 2.20 - 2.21) and discussion of the Goverment's proposal for the use of reflowsduring the annual reviews (para 2.73), buses could be financed with the sub-loan reflows.Replaced combis, minibuses and buses, operating on fixed routes, which are more than eight-years old, could not continue to be operated in the MCMA. Such vehicles, operating withoutfixed routes, older than six years, could only operate for two further years on fixed routes inthe MCMA. In both cases, the vehicles could be in continued use outside the area.
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2.16 Agreement has been confirmed during negotiations on the following matters: (a) for taxisthat: (i) by January 1, 1993 licenses to operate taxis in the MCMA would not be provided or renewedfor vehicles that are more than six years old; and (ii) new taxis under the program would meetMexican emission standards for model year 1993 and onwards; and (b) for minibuses and trucks on:(i) policies for the vehicle replacement program, conversions to LPG or CNG, re-engining, andretrofitting with emission-control equipment (e.g. regulations specifying vehicle replacement criteria,emission and safety standards); and (ii) measures to avoid the continued use of "replaced vehicles" ashigh-use vehicles in the MCMA beyond the age limits stipulated in rhe Government's vehiclereplacement program (e.g. through an MCMA vehicle registration system) (para. 3.1(e)). In the caseof taxis, these technical requirements have already been met. For the minibus and truck replacement,conversion, re-engining and retrofitting programs, further work is needed to meet the technicalrequirements. The needed emission standards would be developed as part of the emission standardsub-component (para. 2.11); safety and other critical features of the conversion program would bedeveloped through the alternative fuel pilot program sub-component (para. 2.19); and vehiclereplacement polices and their enforcement would be reviewed and refined with the help of consultantshired under the CMPCCA Technical Support Team component (para. 2.28). Appropriate publictransport policies would have to be prepared for buses as part of the transport policy anl` managementcomponent (paras. 2.20 and 2.21) before they could be financed from sub-loan reflows.
2.17 Vehicle Registration System Sub-component (US$0.8 million). Improved co-ordination andlinkages between the DDF and the SoM registration and database systems would be supported, inorder to improve the management of the vehicle fleet. The goals would be to ensure that: (a) everyvehicle registered in the MCMA submits to I/M inspections at appropriate intervals; (b) a vehiclecould not be registered annually without presenting an I/M inspection certificate corresponding to theJ/M database records; and (c) high-use vehicles replaced under the Government's vehicle replacementprogram, or failing an I/M inspection, could not be re-registered for continued use elsewhere in theMCMA. The system would be developed in stages: vehicle registration and I/M initially, withpossible future extensions to include linkage with contraventions (to ensure payment of all outstandingfines, prior to annual registration), and incorporation of vehicle safety testing information. Theproposed project would support: (a) consultancy services to design ap ^ppropriate system, prepare animplementation plan, prepare bid documents, and supervise system implementation; and Co)acquisition of computer equipment. The terms of reference were reviewed by the Bank and foundsatisfactory. Upon completion of the consultant services, the results would be discussed with theBank and agreements would be reached on follow-up actions as necessary (Annex 3).
Fuel Comronent (US$34.4 million)
2.18 Gasoline Vapor Recovery Sub-component lUS$33.4 million). Gasoline vapor recoverysystems installed at petroleum terminals (Stage 0), tank trucks and service station tanks (Stage 1), andretail gasoline pumps (Stage 11) could reduce refueling emissions by an estimated 90%. Bank fundingwould be provided for the installation of Stage II and the service-station portion of Stage I vaporrecovery systems at all 360 service stations in the MCMA, and for consultants to coordinate andsupervise the work. PEMEX would provide funding for installing Stage 0 controls at all petroleumproducts terminals in the Valley of Mexico, and equipping all 300 tank trucks used in the MCMA forStage 1. Agreement has been confirmed during negotiations that the CMPCCA Technical SupportTeam would form Working Groups between PEMEX, the DDF and the SoM by no later thanDecember 1992 to coordinate final design and implementation (para. 3.1(f)). The terms of referencefor consultants to prepare detailed designs, bid documents (including technical specifications), and
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supervise this sub-component were reviewed by the Bank and found satisfactory. The performance ofthe vapor recovery system would be reviewed annually with the Bank (Annex 3).
2.19 Alternative Fuel Pilot Program Sub-component (US$1.0 million). This sub-componentwould aim to speed the conversion of minibuses, buses, delivery trucks, and Government vehicles tothe use of alternative fuels, using appropriate technologies in a safe manner. Initially, the proposedproject would support the provision of technical assistance to the CMPCCA Technical Support Teamrelated to: design and monitoring of a pilot program, technical standards (including durability;installation; enforcement), vehicle engineering (for retrofitting), fuel quality, gas and electricdistribution and marketing systems, and public safety. Based on the pilot program design, theproposed project would finance vehicle conversion and acquisition to demonstrate in-serviceperformance of LPG, CNG and electric power driven vehicles in the MCMA. The in-serviceperformance would be monitored over at least one year and the results would be used by theCMPCCA to refine the overall gas conversion program in order to optimize benefits, having dueregard to public safety issues. The terms of reference for the consultant assistance and subsequentimplementation were reviewed by the Bank and found satisfactory. Upon completion of theconsultant assistance by December 1994, the results would be discussed with the Bank and agreementswould be reached on follow-up actions as necessary (Annex 3).
Transport Policy Pnd Management Component (US$2.7 million)
2.20 This component would help prepare an integrated Transport and Air Quality ManagementStrategy for the MCMA, to be agreed with and implemented by the relevant Mexican Authorities.The Strategy would set the context, having due regard to both transport and air quality objectives, forpolicies related to travel demand management, urban freight management, public transport, andtransport sector investment planning. The Strategy would be developed by COTAM, under theauspices of the CMPCCA. The proposed project would support technical assistance to the COTAMTechnical Secretariat to develop and implement a Transport and Air Quality Management Strategy intwo phases. A first phase would develop the overall Strategy by the end of 1993, and a second phasewould prepare specific investments and policy measures for implementation.
2.21 Having regard to the inevitable reed for increased travel demand management in the medium-term, and the likely erosion of the effectiveness of "Hoy no Circula", urgent attention should bedevoted to developing and implementing an appropriate policy for travel demand managemenit. Sucha policy could include pricing measures (e.g. parking fees, tolls, cordon pricing, area licensing),physical measures (e.g. pedestrianization and traffic calming), management measures (e.g. car-pooling), and regulatory measures (e.g. area or corridor bans on non-emission controlled vehiclesduring air quality emergencies). The travel demand strategy would set the framework for: (a) truckmanagement within congested and polluted areas; (b) public transport measures (including fleetmodernization, on-street priorities, pricing, and premium bus services); and (c) management of theexisting private vehicle traffic (e.g. elimination of old, highly-polluting vehicles). The Bank has beenfurnished a satisfactory copy of the legal agreement establishing the COTAM Technical Secretariat;and a full-time technical team, with an initial staffing of no fewer than 5 appropriately qualifiedprofessionals is in place. The terms of reference for the proposed technical assistance to the COTAMTechnical Secretariat were reviewed by the Bank and found satisfactory. The results of the studiesfor travel demand management, urban freight management, public transport, and transport sectorinvestment planning, would be discussed during the annual reviews with the Bank and agreementswould be reached on follow-up actions as necessary (Annex 3).
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S&ientlfic Base ComRonent (USS13.4 Million)
2.22 This component is intended to improve the level of scientific knowledge regarding airpollution in the MCMA, as well as to improve planning, evaluation, and emergency responsecapabilities for air pollution control measures. Financing would be provided for technical assistance,additional air quality monitoring and sampling equipment, and computer systems.
2.23 Technicgl Assistance to the CMPCCA to Improve the Scentific Base (JSS4.7 million). Anexpert consultant team would be contracted by the DDF to work with the CMPCCA TechnicalSupport Team and with the CMPCCA multi-agency Working Groups, which include SEDESOL (NE)and the Ministry of Health. The consultants would provide technical assistance totalling some 210man months in various areas, including:
(a) extended air-quality monitoring and sampling to characterize the air-quality problembetter, and to provide data required for air-quality modeling;
(b) extensions and improvements to the pollutant emissions inventory, in order to provide abetter foundation for air-quality modeling and development of emissions controlmeasures; <e
(c) implementing a photochemical grid model of the MCMA, including associtd emissionsdata bases, transferring this to the CMPCCA Technical Support Team and INE andtraining their staff, and carrying out modeling to address specific policy issues (such aswhether NOx or VOC are of greatest significance for ozone);
(d) development of a human exposure model linked to the photochemical grid model to beprovided in task (c);
(e) contingency planning and prediction techniques for critical pollution episodes;(f) epidemiological study of the health effects of air pollution in the MCMA; and(g) refinements to the present cost-effectiveness methodology for ranking and evaluating of
air-quality projects and development of a more rigorous evaluation methodology usingcost-benefit analysis.
2.24 The consultants would also prepare the technical specifications and bid documents for thescientific base equipment to be financed under the proposed project (para. 2.25). The terms ofreference for the technical assistance were reviewed by the Bank and found satisfactory. Progress inimproving the various aspects of the scientific base would be discussed during the annual reviews withthe Bank and agreements would be reached on follow-up actions as necessary (Annex 3).
2.25 Equlpment for SEDESOL MMNE) (USS4.5 million). This sub-component would support theupgrade and extension of the air-quality monitoring system and the short-term air pollution forecastingsystem.
Extending Air-quality Monitoring System (USS3.2 million). Financing would be providedfor permanent air-quality monitoring sites in the upwind regions of the Valley of Mexico,including Tula - an important industrial emissions source. Two semi-mobile monitoringstations would also be provided to extend the coverage of the network. Specifications and biddocuments for these systems are to be prepared by the consultants under the technicalassistance sub-component.
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Eqipment and Softa for ShoreM Air Polludon For__ting (ISS1.3 mliflon).Equipment and software would be provided to improve the accuracy and reliability of short-term polluticn forecasts, and to link forecasting with response management. Finalrecommendations for this equipment would be developed as part of the consultant study forcontingency planning and prediction techniques for critical pollution episodes (para. 2.23(e)),but it is envisioned that it would include a Tiros satellite link for improved access tometeorological data, an airtrack monitoring system, and the development of an expert system.
2.26 IMP Mobile-source Emissions Lab 1r.r (USS44 niillion). Adequate data on pollutantemissions from motor vehicles are essential in order to establish the emissions inventory, and to planand evaluate the effects of transport emissions control measures such as inspection and maintenance,and fuel reformulation. The existing laboratory of the Instituto Mexicano del Petrdleo (IMP) wouldbe expanded and upgraded to provide sufficient capacity and capability for emission factor develop-ment, testing in support of emission standards development, emissions testing associated with theconversion to LPG and CNG, and similar requirements. This equipment would also be available forstudies by PEMEX, SEDESOL, the CMPCCA Technical Support Team, and commercial clients.The proposed project would finance a heavy-duty chassis test cell (including chassis dynamometer;dilution tunnel system; analyzers and sampling system); a light-duty cell (including constant volumesampler and bags, chassis dynamometer, and on-board exhaust emission sampler); and an evaporativeemissions testing system for measurement of running losses and real-time diurnal emissions.
nstltutional Strer.gthenn. Compgnent =IS.S mililon)
2.27 The proposed component would include institutional strengthening of the CMPCCA TechnicalSupport Team and an independent annual environmental audit.
2.28 CMPCCA Technical Surnort Team (USSS.1 milHon. The CMPCCA and its TechnicalSecretary have a Technical Support Team provided by the DDF's DGPA. This component wouldstrengthen this Technical Support Team by financing long- and short-term cons4tants, including aProject Coordinator for the proposed project. Consultant skills would cover the following technicaldisciplines: project implementation management; vehicle emissions; vehicle inspection/maintenanceand enforcement; alternative fuels (e.g. CNG); atmospheric chemistry and photochemical modeling;environmental economics, policy and planning; transport policy, planning and management; andenvironmental impact assessment (Annex 3). The work of the consultants would include technicalaspects of:
(a) oversight of the implementation and effectiveness monitoring of the overall air qualityprogram, including the following project sub-components:
(i) upgrading and monitoring the DDF and SoM vehicle I/M systems, and the relatedvehicle registration systems,
(ii) the gas conversion program for public transport vehicles and trucks,(iii) the high-use vehicle replacement programs, vehicle re-engining and retrofitting,
and I/M equipment for private garages, and(iv) gasoline vapor recovery systems;
(b) assistance to the CMPCCA to set institutional, emission and air quality targets, and tomonitor performance;
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(c) close liaison with COTAM to ensure coherence between transport sector managementand air quali.y objectives by developing and updating an integrated Transport and AirQuality Strategy;
(d) introduction and management of strengtheined Environmental Impa': Assessmentprocedures for major schemes within the MCMA;
(e) preparation of proposed investments for funding and implementation;(f) direction of work on the scientific base; and(g) advice on education and training related to air pollution.
2.29 Additionally, the Technical Support Team and the consultants would provide technicalassistance related to air pollution to other agencies, particularly those in the SoM. The terms ofreference for long- and short-term consultants (including a Project Coordinator) to work within theTechnical Support Team were reviewed by the Bank and found satisfactory. The Project Coordinatorhas been selected and is in-place. The effectiveness of the CMPCCA Technical Support Team and ofthe Bank-financed consultants would be discussed during the annual reviews with the Bank andagreements would be reached on follow-up actions as necessary (Annex 3).
2.30 Annual Environmental Audit IUSSO.4 million). The services of a group of independenttechnical experts would be contracted to conduct annual environmental audits in order o(determine towhat extent the various DDF, SoM, Federal, Metropolitan and Municipal agencies, and private sectororganizations, are meeting their respective air quality targets. The terms of reference for theenviremnental auditors were reviewed by the Bank and found satisfactory. The results of the auditswould be discussed during the annual reviews w1th the Bank and agreements would be reached onfollow-up actions as necessary (Annex 3).
E. Project Costs and Finandng
2.31 Proect Costs. As shown in Table 2.1, the total cost of the proposed project is estimated atUS$1,386.7 million equivalent, consisting of the base cost (US$980.2 million), physical contingencies(US$5.7 million), and price contingencies (US$100.8 million). Project costs include US$145.0million in taxes and duties and US$3.3 million for land. Cost estimates are based on prices as ofJune 1992. A physical contingency of 10% has been added to civil works, equipment and laboratorytesting cost estimates. Annual price contingencies of 3.7% were applied to both the foreign and thelocal cost component, on the assumption that any differences between domestic and world inflationwould be reflected in periodic exchange rate adjustments. The foreign exchange component isestimated at US$607.2 million, which represents 56% of total project cost.
2.32 Loan Amount and Terms. The proposed loan would be for US$220 million. The loanwould have a maturity of 15 years, including 5 years of grace, and would be made at the Bank'sstandard variable interest rate.
2.33 Financing Plan. The financing plan for the proposed project is set out in Table 2.2. Totalinvestments supported by the credit line. represent some 92% of total project cost. It is estimatedthat about two-thirds of these investments will be financed by the private sector. For example, it isexpected that an important part of the high-use vehicle fleet modernization program would be financedby individual vehicle or fleet owners, commercial banks, and financial leasing. However, in order to
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Table 2.1: Project Cost Summary(in Miion of U.S. DoUll)
PROJECT COMPONENTS LOCAL FOREIGN TOTAL
1. Vehicle Component .41 581.2(a) Emission standards 2.0 4.6 6.6(b) I/M system 10.8 19.6 30.4(c) High-use vehicle fleet modernization 395.1 498.4 893.5(d) Vehicle registration system 0.5 0.2 0.7
II. Fuel Component . 14.7 2(a) Gasoline vapor recovery system
, t (Stage 0 & I PEMEX) 4.9 6.3 11.1(b} tGasoline vapor recovery system
(Stage I & II DDF & SoM) 9.6 8.2 17.7(c) Alternative fuel pilot program 0.6 0.3 0.9
1II. Transport Policy and Manragement Component 1 .23 .
IV. Scientific Base Component 4.7 7.0 11.(a) Technical assistance for CMPCCA 2.5 1.8 4.2(b) Equipment for SEDESOL(INE) 0.8 3.0 3.8(c) IMP mobile-source emissions laboratory 1.4 2.3 3.7
V. Institutional Strengthening Component . 1.1 5.1(a) CMPCCA technical support team 3.9 0.8 4.7(b) Annual environmental audit 0.0 0.4 0.4
Total Base Cost Esitmates 433 546 2
Physical Contingencies I/ 1.5 4.2 5.7Price Contingencies 44.6 56.2 100.8
Total Project Costs 179. 6072 L.086D 7
Of which: (a) taxes, duties 145.0and (b) land 3.3
1/ The high-use vehicle fleet modernization sub-component, by its nature, does not require physicalcontingencies.
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Tabe2l Financing Plan(In Milliou of U.S. Dollars)
WORLD BANKGosemmui
PROJECT COMPONENTS PIvate CouAte Owners 1a SUfoDISector part DoUn Dhburegt q OTAL
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ~ ~ ~~~~rum dqlo Payment_ _ _ _ _
inadag of Fleet Modernzation and IIM System(Supported by Lines of Credlt)
1. Velhle Component
(a) High-use Vehicle Fled Modem n i7a.2 9 IOU 12 -.I) Taxis 224.9 14.4 31.0 51.4 321.72) Minibusca 68.7 4.4 23.3 0.0 96.43) Third Party Trucks 81.1 8.1 26.0 17.2 132.44) Own Account Trucks 111.3 20.7 52.0 31.0 215.05) Emision Control Retrofit 187.2 5.3 30.0 '3i°'° 222.5
(b) I/M System1) Analyzers in Private Gages 8.2 1.2 7.1 0.0 16.5
Tota Financing of Fleet Modenizaton andIIM System 681.4 272 6.9 169.4
Finanig Investment and Technical Assistac
1. VehIlde Component 1412 0
(a) Emission Standards 7.7 7.7(b) I/M System 14.2 3.5 17.7
1) High Volume nspection Stations 13.4 13.42) I/M Enforcement 0.5 0.53) I/M Assesment 2.6 2.64) Supervisory Consultant 0.4 0.45) Mechanic Training Progam 0.8 0.8
(c) Vehicle Registation System 0.8 0.8
11. Fud Component 184 MA
(a) Gasoline Vapor Recovery System (Stage 0 and 1) 12.9 12.9(b) Gasoline Vapor Recovety System (Stage I and 11) 3.1 17.4 20.5(c) Alternative Fuel Pilot Progam 1.0 1.0
I. Transport PoUcy and Manageme Component 2 la
IV. SclentIic Base Component U L U DA
(a) Technical Assistance for CMPCCA 4.7 4.7(b) Equipment for SEDESOL() 0.7 3.8 4.5(o) IMP Mobile-Source Emisiou Laboratoy 0.7 3.5 4.2
V. InstitutIonal Strengtening Component S 5
(a) CMPCCA Technical Support Team 5.1 5.1(b) Annual Environmental Audit 0.4 0.4
Total Investment Finance 1 a
GRAND TOTAL 666 2AO 220.Q 0A l
Pecentage 64.0% 4.1% 2.5% 20.2% 9.2% 100.0%
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accelerate the program, 77% of the proposed World Bank loan proceeds would be used to supportlines of credit through BANOBRAS and NAFIN to finance, through participating financial institutions(PFIs), the purchase of new taxis, minibuses, third party trucks and own account trucks, conversionto LPG or CNG, re-engining, and retrofitting with emissions-control equipment. Computerizedemissions testing and diagnostic equipment for private garages would also be financed through thecredit lines. The amounts included in the financing plan are only indicative and allocations within thecredit lines would be made, depending upon the credit demand for each sub-component (para. 2.64).The status of credit demand would be discussed with the Bank during the annual reviews (para. 2.90).The proposed loan would also finance investments, other than through c edit lines, and technicalassistance to develop and enforce emission standards, to upgrade the existing I/M system, to improvethe vehicle registration system, to install gasoline vapor recovery systems for service stations, to carryout an alternative fuel pilot program, to expand a mobile-source emissions laboratory, to provideequipment for SEDESOL, to prepare a Transport and Air Quality Management Strategy, to carry outscientific base studies, and to support institutional strengthening for the CMPCCA Technical SupportTeam.
2.34 As mentioned in para 2.31, some 56% of total project cost is estimated to be foreignexchange. The Bank loan would finance about 20% of total project cost. Government counterpartfunds would be required to enable NAFIN to finance 100% of the cost of new, own account trucks,vehicle conversions, re-engining and retrofitting as well as inspection equipment (para. 2.86), for theservice station component of the vapor recovery systems and for SEDESOL and IMP laboratoryequipment during the implementation period of the project. Confirmation was obtained durngnegotiations that the Government would provide adequate counterpart funding for the project (para.3. 1(g)). The inspector/mechanic training program will be self-financed with technical assistance bythe GTZ. While the credit demands in the fleet modernization program are likely to be in excess ofthe amount provided for such financing in the proposed loan, significant amounts would becomeavailable from repayments. The use of such reflows is discussed in para. 2.73.
F. Implementation Schedule
2.35 The project would be implemented between the second semester of 1992 and the firstsemester of 1996, including the: (i) vehicle component (from the second semester of 1992 to the firstsemester of 1996); (ii) fuel component (from the first semester of 1993 to the second semester of1994); (iii) transportation policy and management component (from the first semester of 1993 to thesecond semester of 1994); (iv) scientific base component (from the second semester of 1993 to thefirst semester of 1996); and (v) institutional strengthening component (from the second semester of1992 to the first semester of 1996). Annex 5 shows the implementation schedule of the proposedproject by sub-component, and Annex 9 contains key target dates.
G. Project Organization and Management
2.36 Project Organization and Coordination. The Borrower for the proposed Bank loan wouldbe NAFIN and the Guarantor would be the United Mexican States.
2.37 An Environmental Trust Fund has been established, with BANOBRAS as Trustee (paras.2.44 and 2.45). The Environmental Trust Fund is the financial arm of the CMPCCA. It couldreceive financial resources from budget allocations, domestic, and external grants and loans andindependent revenue sources. The Decree establishing the Environmental Trust Fund provides that
34
the Trustee would act under the instructions of a Technical Committee consisting of key members ofthe CMPCCA (paras. 2.44 and 2.45). BANOBRAS as Trustee has established a small team toprovide administrative support for the Environmental Trust Fund, and technical advice would beavailable from the CMPCCA's Technical Support Team. Bank funds under the proposed project,other than for lines of credit, SEDESOL and IMP would be channelled through the EnvironmentalTrust Fund to the DDF, under a suitable contractual arrangement (para. 2.39).
2.38 Under the leadership of CMPCCA's Technical Secretary, the Technical Support Team for theCMPCCA including a project coordinator, would be responsible for program and project coordinationand overall supervision, including the preparation of periodic reports to the Bank. BANOBRAS andNAFIN would be executing agencies for the credit lines for the high-use vehicle fleet modernizationprogram and I/M equipment for private garages. SEDESOL through INE would be executing agencyfor vehicle and fuel emission standards; the DGE of the DDF, in coordination with the SoM/SE,would execute the I/M system; PEMEX would be responsible, in coordination with DGE andSoM/SE, for gasoline vapor recovery systems installed at petroleum terminals and tank trucks; DGEwould be responsible, in coordination with SoM/SE and PEMEX, for the gasoline vapor recoverysystems installed at service station tanks and retail gasoline pumps; the DGPA would be the executingagency for the altemative fuel pilot program and the transport policy and management component(through COTAM, which has no juridical personality and with the participation of SoMJ; the DPGA,in coordination with SEDESOL (INE) and the Ministry of Health, would be responsible for work onthe scientific base; and IMP would be responsible for its own laboratory. The DPGA would be theexecuting agency for the institutional strengthening component. NAFIN would carry out the annualenvirommental audits. The responsibilities ef the various executing agencies for the implementationand supervision of the components of the proposed project are described in greater detail in Annex 6.
2.39 The Borrower and Guarantor. NAFIN, established in 1934, is Mexico's largestdevelopment bank and is the Borrower under 26 Bank loans currz.ntly under of execution (paras. 2.51and 2.52).1" NAFIN would be responsible for the establishment and management of te SpecialAccount that would be set up for the proposed project (para. 2.84). In addition, N. -IN as Borrowerand financial agent of the Govermment, would be responsible for (a) onlending the proceeds of theproposed loan to the Government, which would in turn, be responsible for relending the proceeds ofthe proposed loan to NAFIN and BANOBRAS as executing agencies for the lines of credit, and toIMP; and (b) for making funds available through budgetary allocations to SEDESOL/INE, and on agrant basis to the Environmental Trust Fund. The Environmental Trust Fund would enter into acontract, satisfactory to the Bank, with the DDF, whereby the DDF commits to carry out its projectexecution obligations in exchange for reimbursement from the Environmental Trust Fund of itsrelevant project execution expenditures. The Environmental Trust Fund would be able to ceasedisbursements to an executing agency that defaults on the terms of its contract. A condition of laneffectiveness would be presentation to the Bank of satisfactory signed and legally binding contractualarrangements between NAFIN, the Guarantor, the Environmental Trust Fund, and executing agencies(para. 3.2).
2.40 Assessment of the CMPCCA and Its Technical SuDport Team. The membership of theCMPCCA is appropriate since it includes representatives of all the agencies which play a key role in
1/ A review of NAFIN's organization and financial condition was conducted for the appraisal of the MiningSector Project (Report No. 3359-ME). Its findings remain substantially valid.
35
preparing and implementing the pollution control program in the MCMA. Based on the internalregulations, the proposed operating rules appear to be reasonable, including: (a) the CMPCCA is tomeet at least once every three months; (b) the Technical Secretary is required to give CMPCCAmembers ten days' notice in writing of proposed meetings; (c) in order for a quorum to exist, at leasthalf of the permanent members have to be present; and (d) decisions are to be arrived at by a simplemajority of permanent members present and, in the case of a tie, the President has a decisive vote.
2.41 Eighteen members of the Advisory Council have been nominated and the internal regulationsof the CMPCCA call for them to organize themselves into seven groups. The nominees includeleading scientists, industrialists, and representatives of non-governmental organizations (NGOs). TheAdvisory Council is to play an important and active role in advising the CMPCCA on technicalaspects, and to take a lead role in promoting and stimulating ecological education and training.
2.42 The Technical Secretary was appointed by the President of the Republic in January 1992, fora two year term (renewable). The official appointed as Technical Secretary played a leading role inthe development of the air quality management program over the past two years.
2.43 The Technical Support Team is led by an experienced professional who has been deeplyinvolved in the preparation and initial implementation of the MCMA air quality managementprogram. The existing Team is being strengthened as quickly as possible. The Bank has beenprovided with: (a) the signed agreement between the SoM Government and the President of theCMPCCA; and (b) the approved internal regulations of the CMPCCA. A Project Coordinator for theproposed project, satisfactory to the Bank, has been appointed and is in-place. Individuals from theTechnical Support Team responsible for each of the following components have been appointed andare in-place: vehicle emissions standards, I/M system, gas conversion program, lines of credit,gasoline vapor recovery, scientific base studies, and training; and (c) adequate budgetary allocationshave been made by the DDF for fiscal 1992 to cover 25 professional staff and the operating costs ofthe Technical Support Team. Confirmation was provided during negotiations that: (a) the DDF wouldcontinue to provide during subsequent years and throughout the implementation period of theproposed project budgetary allocations sufficient to cover, at least, the cost of 25 professionalsforming part of the Technical Support Team and the operation costs (support staff and consultantsother than those financed under the proposed project) of the Team; and (b) the CMPCCA, with theassistance of its Advisory Council, would develop a training program for the staff of the TechnicalSupport Team, and of executing agencies; and progress with the training program would be discussedduring the annual reviews (para. 2.90 and para. 3.1(h)). An event of default would be a significantchange to the CMPCCA's functions, and the size and composition of the CMPCCA's TechnicalSupport Team that would reduce its ability to carry out the responsibilities currently assigned to it(para. 3.3(a)).
2.44 Environmental Trust Fund. A review of the Decree creating the Environmental TrustFund, prepared by the Ministry of Finance and Public Credit, indicates that it has the potential ofsubstantially facilitating the effective implementation of the overall environmental program as well asthe proposed project and increasing the sustainability of the pollution control effort. Initial funding,in an amount not yet determined, is to be provided by the official entities and dependencies (Ministryof Finance, DDF, SoM, SEDESOL, PEMEX, etc.) which are members of the CMPCCA. TheEnvironmental Trust Fund is intended to be a channel for multilateral and bilateral loans, commencingwith proceeds of the proposed loan. Other sources of funding envisaged in the Decree are annualbudget allocation by member agencies of the CMPCCA, grants by official or private external or
36
domestic donors, income from the investment of the Fund's resources (net of the Fund's operating
costs and the administration fees to be paid to BANOBRAS), and other contributions assigned to the
FunQ from time to time. This leaves open the possibility of channelling directly to the Fund the
proceeds of user charges, fees, vehicle taxes and/or fuel surcharges, levied in accordance with the
"polluter pays" principle. The Environmental Trust Fund's resources are to be made available as
credits or grants to support implementation of the programs, projects, and activities aimed at
prevention and control of pollution in the MCMA. BANOBRAS, as Trustee, is to administer the
Fund's resources in accordance with instructions of the Fund's Technical Committee. This committee
is composed of two representatives of the Ministry of Finance, one of whom will be its President, as
well as representatives of the DDF, SoM, SEDESOL and the Technical Secretary of CMPCCA. The
Ministry of Finance would appoint the Committee's Secretary. The Committee is to meet at least
every two months, with a majority of its members and at least one of the Ministry of Finance's
representatives present. Any member of CMPCCA other than those represented on the Fund's
Technical Committee will also be able to participate in its meetings, but the Committee's decision will
be taken by majority vote of its permanent members. The Technical Conunittee's functions are: (a)
to approve the Environmental Trust Fund's operating rules, including the terms and interest rates of
its loans to executing agencies; (b) to instruct BANOBRAS how to invest the Fund's tesurces
pending their use to finance environmental programs and projects proposed by the CMPCCA; (c) to
approve the credit operations proposed by the CMPCCA; (d) to ensure that the credits are used for
the intended purposes and that the borrowers meet their obligations; and (e) to review the accounts of
the Trustee's administration of the Fund's resources.
2.45 The Environmental Trust Fund is providing CMPCCA with the leverage needed to influence
the actions of the numerous agencies of the Federal Government, DDF and SoM, as well as private
groups responsible for the detailed planning and implementation of the air quality management
program. Since the CMPCCA has no juridical personality, the Enviromnental Trust Fund would, on
behalf of the CMPCCA, contract with executing agencies. Bank funds under the proposed project,
other than for lines of credit, SEDESOL, and IMP would be channeled through the Enviromnental
Trust Fund to the DDF. Another potential advantage of the Environmental Trust Fund is that it can
be a means of ensuring that resources obtained by applying the "polluter pays" principle are
channeled into the anti-pollution effort. This is important, since experience in Mexico and elsewhere
indicates that the resources for a sustained, long-term anti-pollution effort have to come largely from
the polluters, otherwise the effort would be viewed as inequitable and would not be sustained. The
Bank has been furnished a copy of the final agreed upon version of the Decree establishing the
Environmental Trust Fund, the Trustee (BANOBRAS) has been selected, and an administrative unit is
in-place within BANOBRAS to manage the resources of the Fund. An event of default would be a
significant change to the functions of the Environmental Trust Fund that would reduce its ability to
carry out the responsibilities assigned to it that are relevant to the achievement of project objectives
(para. 3.3(b)).
2.46 CCoordination with COTAM. Close collaboration would be required between the CMPCCA
and COTAM in order to develop an integrated Transport and Air Quality Management Strategy, and
to implement the related investments and policies in a concerted manner (including the application of
strengthened environmental impact assessments for major schemes). To that effect the CMPCCA
would take the lead role in developing and agreeing on the Strategy, and the Environmental Trust
Fund would contract with the DDF, for the benefit of COTAM, to undertake the necessary transport-
related studies. Consultants wculd assist the proposed COTAM Technical Secretariat to undertake the
necessary studies, in cooperation with the CMPCCA Technical Support Team.
37
2.47 -_hsetof euing Ayencies: INL The capacity of the various executing agencies toimplement the components of the project effectively has been assessed carefully. As noted inpara. 1.32, Mexico's Congress has approved the President's proposal to transform SEDUE intoSEDESOL. The functions of SEDUE's Sub-Secretariat for the Environment, are now theresponsibility of INE and PFPA, dependencies of the new Ministry, which are to be technically andadministratively autonomous. INE and PFPA play key roles in efforts to control air pollution in theMCMA. INE is In charge of setting fuel quality and vehicle emission standards and operates the airquality monitoring system. PFPA is responsible for the control of industrial pollution in the DF. Inthe proposed project, SEDESOL through INE would be responsible for the development andpromulgation of vehicle emission standards and would collaborate with vehicle manufacturers and theDDF and SoM Authorities in the enforcement of these standards. It would also be responsible for theacquisition, installation and subsequent operation of equipment extending the MCMA air qualitymonitoring system, and for the acquisition of equipment and software to improve the accuracy andreliability of short-term pollution forecasting. It is important to recall that as a result of severe budgetcuts during the 1980s, the technical staff and operating funds of SEDUE, whose enviromnentalresponsibilities have now been assumed by SEDESOL, were greatly reduced. Despite the sizableincreases in its41990 and 1991 budgets, SEDUE had great difficulty in coping with its manifoldresponsibilitld and was clearly in need of institutional strengthening. Such strengthening is a keyobjective of the Bank's Environmental Project, which was approved by the Board of Directors inApril 1992. Shortly afterward, Mexico's Congress approved the transformation of SEDUE intoSEDESOL, and the transfer of the staff and resources of SEDUE's Sub-Secretariat of Ecology to INEand PFPA. The Bank is reviewing with the Mexican Authorities how the objectives of theEnvironmental Project can best be achieved in light of these important changes in the institutionalstructure.
2.48 The proposed project would support INE in developing, promulgating and helping to enforcevehicle emission standards by financing consultant assistance, contract laboratory studies and relatedneeds. With this assistance, the units in charge of setting and enforcing emission staadards, should beable to implement this important sub-component of the proposed project without undue delays.Similarly, the unit in charge of operating the air quality monitoring system in the MCMA should beable, with the help of the consultants to be financed under the proposed project, to handle itsresponsibilities in extending the MCMA air quality monitoring system and improving short-termpollution forecasting. The new law calls for the transfer of the staff and budget allocation of SEDUEto the new Ministry and its dependencies and: (i) the units of INE in charge of setting and helping toenforce vehicle emission standards is continuing to have the same staff and budgetary resources asbefore the transformation of SEDUE into SEDESOL which, with the consultancy assistance to beprovided under the proposed project, should enable them to develop vehicle emission standards inaccordance with the agreed upon schedule and to help carry out the emission standards enforcementprogram satisfactorily; and (ii) similarly, the unit operating the MCMA air quality monitoring systemis being allocated the staff and budget resources needed to carry out its responsibilities in extendingthe MCMA air quality monitoring system and improving the system for short-tenn pollutionforecasting.
2.49 DGE. The DDF General Directorate of Ecology (DGE) will be the implementing agency forall aspects of modernization of the I/M system in the DF, and will give guidance and assistance to theSoM Ecological Secretariat. Moreover, DGE will be in charge of executing, in coordination withSoM/SE and PEMEX, the vapor recovery sub-component. The DGE is relatively well equipped tohandle these responsibilities. It has recently upgraded the 13 fixed and 18 public mobile inspection
38
stations with BAR-90 equipment, financed by the Bank's First Urban Transport Project. With a staffof 140 technicians, the DOE monitors the operation of several hundred private I/M stations with thehelp of students of the University of Mexico, and has a small, experienced group of managers. Therecently appointed General Director was the lead consultant of the joint Mexican-international teamwhich prepared the Government's Transport Air Quality Program.
2.50 SoM clogical Secretarjal. Following the approval of a new environmental law by theSoM legislature, the Ecological Commission was transformed into a State Ecological Secretariat(SoM/SE), with direct access to the Governor, greatly enlarged powers and responsibilities, and agreater budget and much larger staff. The new Secretary moved very rapidly in designing andreceiving approval for the structure, budgets, and corresponding staff positions. Hiring and trainingthe additional technical and inspection staff will be a difficult task. However, this is unlikely topresent a serious impediment to implementation of the I'M component, which is to be carried out byprivate contractors under concessions to be issued by the Secretariat. The latter has agreed to followthe lead of the DGE in the organization and management of the new I/M system and would haveaccess to the staff and consultancy resources of the CMPCCA Technical Support Team, in case ofneed (para. 2.29).
2.51 NAEN. NAFIN is the Govermnent's most important development bank supporting mainlythe industrial sector. NAFIN is a second-tier lending institution financing the industrial sector; i.e.mostly micro-enterprises and small and medium size industries (SMIs) through commercial banks,leasing companies, credit unions and state trust funds. It also participates in promoting investments innew companies by directly investing risk capital in private companies. NAFIN also acts as one of theGovernment's financial agents in a variety of transactions, the most important of which involveraising external resources in capital markets and through bilateral and multilateral agencies. NAFINhas extensive experience in financing through second-tier financing operations. The institution hasdeveloped adequate administrative guidelines, controls and supervision procedures for managing itsprograms. As of December 31, 1991, NAFIN's total assets stood at about Mex$54 trillion (close toUS$18 billion equivalent).
2.52 NAFIN is a financially sound and creditworthy institution, whose financial position has beenstrengthened since its reorganization in early 1989, due to: (a) new operating focus and policies (i.e.concentrating on low risk second-tier lending, limiting its equity participation in private sectorcompanies to 25% or less of a company's outstanding shares, and divesting itself of its holdings inpublic sector enterprises); and (b) the sale to the Government of its large non-performing publicsector portfolio. NAFIN's profitability has also improved in recent years. The return on assetsincreased from 0.21% in 1988 to 1.12% in 1991, while the return on equity increased from 3.5% to16% in the same period. Moreover, the reurns in 1991 reflect charges for reserves made against theyear's results. Otherwise the return on equity would have been 29.2% or about 10% return in realterms.
2.53 BANIQ. A. Established in 1933, BANOBRAS is the principal source of funding for theGovernment's public works and housing sector projects. The institution provides credit to state andmunicipal Governments to finance public works (mainly water and sewage systems), low incomehousing and public transportaton. In addition, as a second-tier bank, BANOBRAS provides credit tocommercial bank to finance Government established programs such as the taxi and minibusprograms; it also provides guarantees to private contractors engaged in public sector works.BANOBRAS recently established a separate unit to manage its second-tier operations. BANOBRAS,
39
therefore, now has the organizational arrangements and institutional capacity for managing the creditlines assigned to it under the proposed loan. BANOBRAS is the Borrower for 11 Bank loanscurrently in execution. In August 1989, BANOBRAS closed its retail deposit-taking operations andconverted its branches throughout Mexico into regional offices in each of the 31 Mexican states.
2.54 Loans to Mexican public sector entities are made by BANOBRAS both in its capacity asfinancial agent of the Government and from its own funds. As of December 31, 1991, 77.2% ofBANOBRAS' loans were made as financial agent of the Government. In these opwixtionsBANOBRAS passes the funds to the different Government entities and charges a co, mission.BANOBRAS carries little credit risk on its portfolio, because 97.3% of its loans are made to thepublic sector and have the guarantee of the Federal Government. BANOBRAS has never sufferedlosses on loans to the public sector and does not establish reserves for bad debts on these type ofloans. BANOBRAS has suffered some losses in loans to the private sector, however, these loans arenow being channelled through the commercial banking system as second-tier operations where thecommerc;al banks assume the credit risk. These loans are made at variable interest rateme .vhich areadjusted monthly. On the liabilities side, its financial agent operations are protected against foreigncurrency exchange risk as the Government assumes the risk. In the case of direct foreign cr-encyborrowing by BANOBRAS, these funds are either on-lent in foreign currency or on-lent in ., alcurrency but with principal and interest payments adjusted for exchange rate fluctuations.
2.55 COTAM. The project's transport policy and management component would support theongoing work of COTAM which, since its formal constitution in February 1991, has developed andstarted to implement an ambitious work program. COTAM has 10 working groups, consisting ofstaff members of the Federal Ministry of Transport and Communications, the DDF, and the State ofMexico, who work on a part-time basis with some support from consultants. The presidency ofCOTAM has until now rotated every six months between representatives of the Federal Ministry, theDDF, and the SoM, resulting in changes in the composition and leadership of the various workinggroups. The lengthening of the term of COTAM's President to two years and the setting up of a full-time core team, which the Bank loan would support by financing technical assistance, shouldstrengthen COTAM's ability to develop and secure the implementation of a number of importantreforms in transport policy, including much needed improvements in the coordination of the planningand operation of public transport facilities in the DDF and SoM (para. 2.21).
2.56 Other Executing Agencdes. Improvements to the scientific base, and methodologies for airquality decision making in the MCMA would be prepared by an expert consultant team under thesupervision of the CMPCCA Technical Support Team. Working Groups would be established for thevarious scientific studies, involving staff from SEDESOL and the General Environmental Directorateof the Health Ministry, which consists of medical specialists and health statisticians.
2.57 The proposed project calls for the expansion and upgrading of the existing IMP emissionlaboratory. IMP has an experienced technical staff and should have no problem in implementing thisproject sub-component. PEMEX should have no difficulty in marshalling the staff as well as thetechnical and financial resources needed to: (i) provide funding for installing controls on all petroleumproducts terminals in the Valley of Mexico and equipping all of its tank trucks used in the MCMAwith vapor recovery devices; and (ii) participate effectively in a Working Group with the DDF andthe SoM, which is to coordinate and supervise the design and execution of vapor recovery systems atretail gasoline stations.
40
H. Flow of Funds
2.58 The Bank loan proceeds would be used to finance: (a) the high-use vehicle modernizationprogram through lines of credit at NAFIN and BANOBRAS; (b) investments and technical assistancefor the DDF; (c) sub-components for SEDESOL and IMP; and (d) the annual environmental audits.NAFIN, would transfer the proceeds of the proposed loan to the Govermnent, which would in mmrn,be responsible for onlending the proceeds of the proposed loan to NAFIN and BANOBRAS asexecuting agencies for the lines of credit, and to IMP, for making funds available through budgetaryallocations to SEDESOL and for transferring funds on a grant basis to the Environmental Trust Fundand to NAFIN (to carry out the annual envirommental audits). The loan proceeds would be madeavailable by the Government to BANOBRAS and NAFIN at the 28-days CETES (Treasury Bill) rate,and to IMP on the same terms as the Bank loan (15 years with a 5 year's grace period). TheGovernment would assume responsibility for repayments to NAFIN on the funds (a) passed on toSEDESOL, and the Environmental Trust Fund; and (b) onlent to BANOBRAS and IMP.
2.59 The Government would onlend US$89.1 million equivalent to NAFIN and US$80.3 miFllionequivalent to BANOBRAS, executing agencies for the credit lines, and US$3.5 million equivalent toIMP as executing agency for the mobile source emission laboratory. The Government would makeavailable US$11.5 million equivalent through budgetary allocations to SEDESOL for emissionstandards related work and air quality monitoring and forecasting equipment, would transfer US$35.2million equivalent on a grant basis to the Environmental Trst Fund and US$0.4 million equivalent toNAFIN as executing agency to carry out the annual environmental audits. The Environmental TrustFund v ruld transfer US$35.2 million equivalent on a grant basis to the DDF; these finds would beused as follows: (a) US$17.4 million equivalent to carry out stages I and II of the vapor recoverysystem; (b) US$0.5 million equivalent for I/M monitoring and enforcement; (c) US$2.6 millionequivalent for the I/M program assessment and development; (d) US$0.4 million equivalent for theIIM supervisory consultant; (e) US$0.8 million equivalent for the vehicle registration system; (t)US$1.0 million equivalent for the alternative fuel program; (g) US$2.7 million equivalent fortechnical assistance to COTAM; (h) US$4.7 million equivalent for the scientific base technicalassistance; and (i) US$5.1 million equivalent for technical assistance to the CMPCCA. Chart 2.1summarizes the flow of funds arrangements.
I. The UInes of Credit
2.60 The lines of credit to finance the high-use vehicle fleet modernization sub-component, wouldbe managed by BANOBRAS and NAFIN and executed through PFls. The Government assigned theresponsibility for the management of the credit lines between these institutions, based on theirexperience and specialization: BANOBRAS for its experience with the public transport sector, andNAFIN for its knowledge of the industial sector and its established first-tier institutionalarrangements for lending to it. Under this arrangement, the BANOBRAS line of credit uf US$80.3million equivalent would finance the taxi, mimbus and common carrier truck programs. The NAFINcredit line of US$89.1 million equivalent would finance own-account trucks, the emission controlretrofit program (conversions to LPG or CNG, and the re-engining and retrofitting) and computerizedemission testing and diagnostic equipment. The credit lines are discussed in detail in Annex 4.
41
Chart,2.: Flow of Funds
World Bank
NAFIN(Financial Agent of Government)
IGovernment
I I I_SEDESOL through ENVRONMENTAL
BANOBRAS NAFIN IIMP IE TRUST FUND
Executing agency Executing agency Executing agency Executing agency US$35.2 million grantfor credit lines for credit lines for mobile-source for emission to DDF for:(US$80.3 million) (USS89.1 miUion) emissions standards, and air-15 years loan at 15 years loan at laboratory monitoring and Stages I and I of theCETES CETES (US$3.5 million) forecasting vapor recovery system
15 years loan at equipment (US$17.4 million);the Bank's standard (US$11.5 million VIM monitoring and
Executing agency variable rate. through budgetary developmentto carry out annual allocation) (US$0.5 million);environmental audits J/M program assessment and(US$0.4 million developmentgrant) (US$2.6 million);
IIM supervisoryconsultant(US$0.4 million);vehicle registration
l 1 ' system(US$0.8 million);
PFls alternative fuel pilotprogram
Private taxi owners, (US$1.0 million);truck operators, etc. technical assistance
to COTAM(US$2.7 million);technical assistance forscientific base(US$4.7 millioa); andtechnical assistanceto CMPCCA(US$5.1 milion).
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2.61 BANOBRAS has established lines of credit for the replacement of taxis. After initial delays,the line of credit is now beginning to be used as: (a) PFIs have solved issues of guarantees, collateral,vehicle and life insurance; and (b) BANOBRAS has strengthened its unit responsible for the programand developed clear administrative guidelines for managing the program. BANOBRAS has appointedan experienced promotional manager for its vehicle credit programs, and developed a program topromote its credit lines among vehicle producers, beneficiaries, and financial intermediaries.BANOBRAS' operating rules for the credit lines have been reviewed by the Bank and foundacceptable.
2.62 NAFIN has extensive experience in financing the industrial sector through second-tierfinancing operations. The institution has developed clear administrative guidelines, controls andsupervision procedures for managing its programs. N- FIN's credit lines to finance the acquisition offixed assets and the permanent working capital needs of micro-enterprises, small, medium and largeindustrial companies, are being carried out as first-tier lending operations by all eighteen commercialbanks, a number of leasing companies, credit unions and state funds. NAFIN has established a unitto focus on the credit needs of enterprises in the MCMA. This unit would be responsible forpromoting the programs among PFIs and final beneficiaries financed under the loan. NAFIN hasprovided the Bank with the operating rules, interest rates, spreads and sub-loan terms for its proposedcredit lines to finance the fleet modernization program and these have been found satisfactory.
2.63 The forced high-use vehicle replacement and conversion programs will generate largeenvironmental benefits - justifying Government intervention. This intervention could be in the formof tax incentives, or other administrative measures such as direct subsidies, as well as throughsubsidized credit programs. However, taxi owners and owners of other vehicles (such as minibuses,buses, third party trucks) are small operators who normally are not taxpayers; their behavior isunlikely to be affected by a tax incentive program. Moreover, a system of direct subsidies would bedifficult to design and administer. The vehicle and other programs which would receive financingthrough the credit lines are high priority programs which must be carried out within a relatively shorttime period and which impose additional costs on vehicle owners and operators. Although asignificant part of the replacement and conversion program will be carried out by larger enterprisesand individuals with adequate access to credit, much of the program will be implemented byindividuals or small enterprises with limited access to credit. Specific credit lines, such as the creditline for taxis, designed to meet the credit needs of these beneficiaries, are expected to facilitate theimplementation of these programs and accelerate the replacement and conversion programs.Replacement is unlikely to be achieved on a timely basis and on the massive scale intended unless anadequate amount of credit is provided on reasonable terms. The final lending rates on sub-loanswould be consistent with the lending policies of BANOBRAS and NAFIN and would be belowpresent market levels by about 4% to 6% p.a. based on current interest rates (a sub-loan lending rateof 27% to 29% p.a. compared to a commercial rate of about 33% p.a.). However, a significant partof this difference is offset by the cost of additional guarantees required by the commercial banks fromsmall, individual borrowers. The differences, while not large, should help encourage smallindependent vehicle owners and small enterprises to purchase new vehicles to replace their oldvehicles rather than replacing them with newer but used vehicles. This would have a positive impacton pollution reduction and would justify the credit subsidy.
2.64 A detailed analysis of demand for the credit lines is given in Annex 4. The lines of creditwould initially finance about 2,800 taxis, 850 minibuses, 1,400 third party trucks, 2,800 own accounttrucks, and 11,400 conversions to either LPG or CNG. Loan resources provided by subloan reflows
43
are expected to finance additional vehicles, including buses, conversions, re-engining, and retrofitting.As shown in the financing plan for the project, an important part of the program is likely to befinanced with vehicle owners' own resources, and a large part of the. own account truck replacementand emissions control retrofit is expected to be financed by fleet owners. Also, other financial agentssuch as leasing companies are expected to finance the acquisition of a number of vehicles (e.g.minibuses, light and medium trucks). The allocation of credit line funds in the loan between NAFINand BANOBRAS is based upon the demand analysis set forth in Annex 4. In order to maintainmaximum flexibility in the use of funds, there would be no specific allocations (e.g. in the case ofBANOBRAS) for sub-components (taxis, minibuses or trucks, etc.) and loan funds would be allocatedto sub-components where credit demand first develops. The use of loan funds by each institutionwould be monitored during the annual reviews and could be reallocated by agreement between theGovernment and the Bank (para. 2.90).
2.65 Financial Intermediaries. In administering the credit lines as second-tier institutions,BANOBRAS and NAFIN would lend through PFIs eligible to participate In the proposed project,namely established commercial banks and leasing companies and some development banks. The Bankhas discussed and agreed with BANOBRAS and NAFIN on the conditions the PFIs have to meet inorder to participate. These conditions refer to infrastructure, staffing, and experience in theevaluation, processing, and administration of credit lines. BANOBRAS and NAFIN would evaluateeach PFIs capabilities in this regard. Participating PFIs would also need to: (a) observeBANOBRAS' and NAFIN's operating regulations for the credit lines; (b) ensure that Bankprocurement and disbursement guidelines are being followed; (c) provide all reasonable sub-loaninformation requested by the Bank, BANOBRAS, NAFIN and the CMPCCA (on types of vehiclesfinanced, procurement, amounts and terms of financing, repayment performance, etc.); and (d) takethe full credit risk for the subloans financed with BANOBRAS and NAFIN resources for the creditoperations.
2.66 BANOBRAS has already established a line of credit for taxis (para. 2.61). To date, threecommercial banks: Multibanco COMERMEX, Banca CREMI and BANPAIS and two developmentbanks (BANPECO which deals with sniall commercial enterprises, and BANJERCITO which lends toex-military) are participating in the high-use vehicle replacement program. Banca CREMI andBANPAIS have recently been privatized; Multibanco COMERMEX is to be privatized within the nextfew months. A Volkswagen financing company owned by a consortium of Volkswagen distributors isalso participating in the financing of taxis. The participating financial institutions, with the exceptionof BANFECO, have limited experience in dealing with high numbers of small loans (i.e. the taxireplacement program) and all until recently have had limited experience in lending for vehicles.However, all the PFIs have moved aggressively and have set up special modules to attend theirrespective clientele. NAFIN expects that all the commercial banks and leasing companiesparticipating in its lines of credit to the industrial sector would also participate in financing the high-use vehicle fleet modernization program. All the participating commercial banks have appropriateexperience for lending for equipment acquisition. The commercial banks should have no difficultiesin lending for the acquisition of computerized emissions testing and diagnostic equipment by private-garage inspection stations, since adequate real guarantees required by the commercial banks can beprovided by the beneficiaries.
2.67 The commercial banks which are participating in the programx are in sound financialcondition and are supervised by the National Banking Commission "Comision Naciu.,ial Bancaria"(CNB). Modernization of the supervision system of banks has recently bee:l rapid, and a new loan
44
classification and provisioning system and an automated monitoring and surveillance system have beenintroduced. Leasing companies are subject to the same prudential regulations as the commercialbanks by the CNB. By the end of 1992, development banks would also be supervised under a systemsimilar to the one applied to commercial banks. All the commercial banks and leasing companieswould be eligible PFIs under the loan. The Volkswagen (or any other) distributors would not beeligible, as there is a conflict of interest between these financing and distribution functions, and theyhave tended to control the supply of new vehicles. Development banks in good standing with theCNB, and which have the appropriate experience, staffing, and infrastructure to manage lines ofcredit effectively, as determined by BANOBRAS and NAFIN, would also be eligible.
2.68 Relending Arrangements. The loan proceeds allocated to the credit sub-component of theproposed loan would be onlent by BANOBRAS and NAFIN through PFIs, to finance sub-loans toproject beneficiaries. Sub-loans would be denominated in Mexican pesos. The cost to BANOBRASand NAFIN of Mexican peso funds would be the 28-day CETES (Treasury Bills) rate in accordancewith Government practice for lending through development banks. BANOBRAS, which bases all itslending on CETES (the Government's Treasury Bill rate), would onlend these funds to PFIs atCETES plus one and one-half points to cover the costs of administering the credit lines. The PFIswould onlend these funds to purchasers of taxis at interest rates of up to CETES plus seven and one-half points and no less than the GIRA (General Interest Rate Agreement) rate, thereby providing PFIswith a six points spread to cover financial intermediation costs, including administrative costs,orovisions for loan losses and an adequate return on capital. PFIs would onlend funds to purchaseminibuses at CETES plus up to six and one-half points and no less than the GIRA rate, providing thePFIs with a financial spread of up to five points. Loans for minibuses are on average four times aslarge as those for taxis, thereby reducing administrative costs per Mexican peso lent. They are alsoconsidered to be less risky loans than those for taxis, because of the greater financial viability ofminibus operations. Interest rates on sub-loans for small common carrier trucks will be at the samelevel as those for m!iibuses.
2.69 NAFIN would lend through PFIs for company truck replacement, conversion, re-engining,retrofitting and vehicle inspection equipment. NAFIN's lending through PFI's is based on CPP (theaverage cost of funds to commercial banks). NAFIN's interest rate policy is based on theclassification of enterprises by size - with different rates applying to micro, small, medium, and largesize enterprises. For the project line of credit, NAFIN proposes to use the same interest ratestructure as in its environmental program ("Programa de Mejoramiento del Medio Ambiente") whichat present provides a slightly lower credit subsidy than the BANOBRAS rates. Lending rates to PFI'swould be CPP minus two percentage points for loans to microenterprises, CPP minus one point forloans to small enterprises, CPP for loans to medium sized enterprises and CPP plus one point forloans to large enterprises. Final lending rates to sub-borrowers would, for all loans, be up to CPPplus six points and no less than the GIRA rate, thereby providing spreads of eight points for loans tomicroenterprises, seven points on loans to small enterprises, six points on loans to medium sizedenterprises, and up to five points on loans to large enterprises. Based on NAFIN's Jxperience thesespreads reflect the varying risks and costs of administering loans to this range of enterprises.
2.70 The conditions of the credit lines to be funded by the Bank have been closely aligned withthe conditions of ongoing credit lines to avoid administrative confusion and implementation delays.These conditions are acceptable for the following reasons. BANOBRAS and NAFIN have based theirlending operations through PFI's on different reference rates, CETES and CPP respectively, for sometime. Both rates are market determined and tend to move closely together. The CPP rate has
45
exceeded the CETES rate by a small margin for some time and NAFIN has found its use moreattractive. BANOBRAS, which lends mainly to small individual borrowers, has continued to use theCETES rate as it reflects the cost of financing to the Goverment, which BANOBRAS considers asmore relevant for the type of projects and beneflciaries it deals with. Both banks cover their cost offunds and earn a margin to cover their administrative cost and generate a profit. BANOBRASlending rates being based on CETES are above GIRA rates for sub-loans of the kinds financed underthe proposed loan. NAFIN's interest rates, though based on CPP rates, currently exceed GIRA ratesand hence would also be acceptable. NAFIN may, however, decide to change Its interest rate policy,as it has in the past, if the relationship between CETES and CPP rates change. The Bank wouldrequire that interest rates on sub-loans be consistent with the GIRA agreement between the Bank andthe Government. The financial spreads charged by the PFI's are based on the varying risks and costof administering sub-loans financed with resources provided by BANOBRAS and NAFIN. They willthus be different for loans to private individuals (taxi owners) and enterprises, because of thedifferences in creditworthiness and the size of loans (oans for minibuses are several times larger thanloans for taxis). The proposed interest rates on sub-loans would be positive in real terms, but arebelow current market rates. However, they would be acceptable for reasons given in para 2.63.
2.71 Subloan Maturties. Under the BANOBRAS line of credit, sub-loan terms for taxis wouldbe for one to three years, normally with no grace Feriod (although one PFI gives a one month graceperiod in order for taxi purchasers to pay for the costs of painting the vehicle and preparing it for taxiservice, and also to pay the higher insurance costs of a new vehicle). Sub-loans for minibuses andtrucks would be up to four years. NAFIN, which lends to the private industrial sector is reviewingits sub-loan term policy for this program. In principle, all sub-loans made under NAFIN's high-usevehicle modernization program would be for up to seven years with no grace period, including theI/M inspection equipment for private garages.
2.72 Free Limits. None of the sub-loans for taxis or for inspection equipm-nent would requireprior Bank approval as they are individually small and the policies and procedures for making suchsub-loans have been reviewed and found satisfactory. The same would apply to sub-loans forminibuses, trucks, conversions, re-engining and retrofitting. Nevertheless, the Bank would review thefirst four sub-loans for each vehicle category and emission testing and diagnostic equipment to assurethat the evaluations were properly carried out, that vehicles or equipment being financed meet therequired emissions and safety standards, and that procurement arrangements and sub-loan terms areappropriate.
2.73 Use of Sub-lon Rflows. As described in para. 2.71, sub-loans for the various vehicle sub-components would raage from one to seven years. There would therefore be considerable sub-loanrepayments during the project implementation period. For example, although 2,800 taxis are to befinanced under the credit line, if taxi sub-loan repayments were used to finance additional taxiacquisitions, it is estimated that some 7,500 taxis could be financed during the project period. Inorder to increase the impact of Bank resources on the Government's anti-pollution program, sub-loanrepayments (reflows) should be used during the grace period of the Bank loan to finance additionalvehicles (including buses), conversions, re-enginn and retrofitting included in the high-use vehiclefleet modernization program, and related investments authorized by the CMPCCA which could befinanced through credit lines. During the annual reviews the Government would present a proposalfor the use of reflows for the coming year (para. 2.90).
46
2.74 Conditionality for the Line of Credit. Agreement was confirmed with BANOBRAS andNAFIN during negotiations on: (a) BANOBRAS' and NAFIN's operating rules for the credit lines(eligible goods, including emission and safety standards, procurement rules, financing limits,guarantee and insurance arrangements, and disbursement arrangements) (paras. 2.61 and 2.62)); (b)eligibility criteria for PFIs (paras. 2.65 - 2.67); (c) general terms of relending contracts betweenNAFIN, BANOBPAS and PFIs (para. 2.68); (d) lending rates and terms to PFIs and finalbeneficiaries, including spreads (paras. 2.68 - 2.70); (e) that BANOBRAS and NAFIN carry out theirpromotional campaigns (para. 2.61 and 2.62); and (f) the use of reflows (para. 2.73 and para. 3.1(i)).
2.75 Credit lines are still being prepared for some of the proposed project sub-components such astrucks, and for the conversion, re-engining and retrofitting programs. The Bank would only authorizesub-loans for any of these credit lines once it is satisfied as to their respective compliance with theconditions referred to in para. 2.74(a)-(e).
2.76 Lefal Arrangements. There are: (a) a Loan Agreement between the Bank and NAFIN; (b)a Guarantee Agreement between the Bank and the United Mexican States; and (c) Project Agreementsbetween the Bank and BANOBRAS, IMP and the Trustee of the Environmental Trust Fund. TheEnvironmental Trust Fund would enter into a contract, satisfactory to the Bank, with the Governmentand SoM, whereby the Government (through DDF) commits to carry out its project executionobligations in exchange for reimbursement from the Environmental Trust Fund for its projectexecution expenditures.
J. Procuremeiit
2.77 Under the supervision of the CMPCCA, each executing agency would carry out theprocurement of its own sub-components. Standard bidding documents, satisfactory to the Bank,would be used during project execution. All ICB contracts and the first LCB contract for eachexecuting agency would be subject to prior review by the Bank. All other procurementdocumentation would be subject to selective ex-post review. Each executing agency would retaindocumentation for these contracts for periodic supervision by Bank staff.
2.78 Civil Works. Civil works would be procured under LCB procedures acceptable to the Bank.
2.79 Goods and Equipment. Except for goods and equipment listed in para. 2.81, all contractsthat can be packaged to exceed the equivalent of US$250,000 would be procured on the basis of ICB.Contracts of less than the equivalent of US$250,000 would be procured under LCB. In the case ofprocurement through ICB, Mexican firms would be granted for purposes of bid evaluation apreference margin in accordance with Bank guidelines.
2.80 Vehicles and Vehicle Conversion and Retrofit Parts for the Private Sector. Vehicleprocurement in Mexico has to adhere to the terms of the December 1989 Decree for the Promotionand Modernization of the Automobile Industry. Under the Decree, (a) vehicles can only be importedby firms producing vehicles or components in Mexico, within monetary limits determined by thevolume of their exports; and (b) imports by other parties can only be authorized if the domestic price,excluding internal taxes, is higher than the foreign price (computed in accordance with the rules ofcomparison established by the Inter-Ministerial Commission for the Automobile Industry). However,since the Commission has not yet established such rules, the comparison is regulated by a transitory
47
disposition according to which, at present, the comparison shall be made on the basis of the ex-factory price in the source country, less applicable normal discounts, plus import duties and the dealermargin in effect in Mexico. At present, applicable import duties are 20% of the CIF price, and thedealer margin is 18% of the CIF price plus import duty; thus, the resulting prote"-tion level is at least25%. However, the Government has begun to liberalize imports of vehicles. Large buses canalready be freely imported into Mexico, and imports of large trucks will be authorized as of January1994. Moreover, the Inter-Ministerial Commission intends to establish the rules of comparison of theDecree in the near future. The U.S., Japanese and German automotive company subsidiaries thatproduce vehicles and parts in Mexico are low cost producers, and their net of tax ex-factory pricesare comparable to U.S. prices. In 1991, Mexican vehicle production exceeded one million units, ofwhich 358,000 were exported. Taking into account: (a) that the proposed accelerated replacement ofhigh-use vehicles, which contribute disproportionately to air pollution, will make a very significantcontribution to improving air quality, which is the primary objective of the project; (b) that theMexican automobile industry's factory prices are comparable to U.S. prices (both net of taxes); (c)that the Mexican Government is liberalizing imports of vehicles; and (d) the fact that even if importsof vehicles were to be liberalized immediately, it would take time for newcomers to establish supportfacilities and to establish themselves in the market; the use of established commercial practices for theacquisition of taxis, minibuses, and trucks under the Bank-financed credit lines on an exceptionalbasis is considered reasonable.
2.81 Taxis, minibuses, and trucks (totalling to the equivalent of US$165.4 million) would beprocured using established commercial practices. The Mexican Auithorities would present, withinthree months from the date of effectiveness, a methodology satisfactory to the Bank to assess andconfirm that the use of commercial practices is consistent with economy and efficiency (in terms ofprices), and with project objectives (by ensuring sufficient and timely vehicle availability). TheMexican Authorities would, with the help of an independent procurement consultant, satisfactory tothe Bank, complete and submit such an assessment within nine months from effectiveness. Should theresults be satisfactory to the Bank, established commercial practices would continue in use subject toreview at six months intervals. Should the first or any subsequent review not be satisfactory (becausein the opinion of the Bank economy and efficiency are not being achieved or because vehicle supplyconstraints impede achieving project objectives) with respect to any type of vehicles to be procuredunder the project, the Bank could cease to disburse for such type of vehicles until agreement has beenreached on revised procurement arrangements consistent with more liberalized vehicle imports,satisfactory to the Bank. If no agreement on an acceptable revised procurement arrangement for anytype of vehicles to be procured under the proposed project can be reached within six months, theBank would reserve the right to reallocate funds to other types of vehicles or project sub-componentsor to cancel the respective loan amount. Vehicle conversion and retrofit of parts (amounting to theequivalent of US$35.3 million) and computerized emission testing and diagnostic equipment forprivate garages (amounting to the equivalent of US$8.3 million) would be procured under establishedcommercial practices in the MCMA on the basis of comparison of price quotations obtained from atleast two suppliers or contractors without being subject to the above periodic reviews.
2.82 Consultants. The selection and appointment of consultants for technical assistance andstudies, including laboratory testing, would follow the August 1981 Bank Guidelines for the Use ofConsultants by the World Bank Borrowers and the World Bank as Executing Agfency. Agreementwas confirmed during negghiations on all procurement arrangements (para. 3.1( Q)).
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2.83 Project Cost by Procurement Method. Table 2.3 presents a summaty of project cost bycategory and procurement method.
K. Disbursernents
2.84 In order to facilitate project execution, a Special Account would be opened and maintained InUS dollars, with an initial deposit of USS20.0 million, representing the estimated loan disbursementsover the four months peak periods in fiscal years 1994 and 1995.
2.85 NAFIN, as financial agent of the Government, would request withdrawals under the Loan,including the Special Account. Withdrawal applications would be made on the basis of statements ofexpenditures for contracts costing less than US$1.0 million equivalent for civil works and goods, andUS$100,000 equivalent for consultant services. NAFIN would ensure that all supportingdocumentation is adequately maintained and made available for review upon the Bank's request.NAFIN would be required to submit to the Bank a monthly statement of the transactions of theSpecial Account. Agreement was confirmed during negotiations on the disbursement arrangements(para. 3.1(k)).
2.86 Vehicle purchasers are currently required to make a 15% down payment for new vehiclesand BANOBRAS is financing the remaining 85% of the cost. This would continue, and the Bankwould finance under the loan 100% of the amounts disbursed by PFls for new vehicles (taxis,minibuses, third party trucks). For new vehicles (own account trucks), vehicle conversions, re-engining and retrofitting, and inspection equipment, NAFIN finances 100% of the cost. The Bankwould finance 85% of sub-loans for new vehicles and conversions, re-engining and retrofitting, andfor emission testing and diagnostic equipment. The Bank would also finance 85% of the expendituresfor laboratory equipment, for the vapor recovery system, and for civil works. The Bank wouldfinance 100% of expenditures for consultant services including laboratory testing under the followingcomponents: (i) vehicle component; (ii) fuel component; (iii) transport policy management; (iv)scientific base. and (v) institutional strengthening. The allocation of loan proceeds is given in Annex7 and the estimated schedule of Bank loan disbursements in Annex 8. The final date for submissionof sub-loan requests to the Bank for authorization would be June 30, 1996, and the closing date wouldbe June 30, 1997.
2.87 Retroactive F dn . Retroactive financing up to US$7 million equivalent vould beavailable for project expenditures incurred in accordance with Bank procurement guidelines after May1, 1992. Claims for retroactive financing of eligible expenditures would be submitted to the Bank nolater than 90 days after loan effectiveness. Agreement was confirmed during negotiations on theretroactive f- -ancing arrangements (para. 3. IQ)).
L. Accounts and Audits
2.88 Agreement was confirmed during neg utiations that NAF11, the CMPCCA, BANOBRAS andall other executing agencies would maintain adequate records to reflect their operations and financialsituation, in accordance with sound accounting principles applied consistendy (para. 3.1(m)). Theaccounts of the executing agencies, including those kept for the purposes of the project, the Special
49
Table 23: PIroject Cost by Procurement Method(in bums of U.S. DoRs)
Phorment MethodProject Element ICB LCD Other N.B.F. Total Cost
1. Vehicles 165.4 / 600.1 765.5(132.3) (132.3)
2. Vehicle Conversion and 35.3 Al 187.2 222.5Retrofit Parts (30.0) (30.0)
3. Civil Works 0.6 0.6(0.5) (0.5)
4. Equipment 8.9 8.3 A/ 8.4 25.6(7.7) (7.1) (14.8)
5. Consulting Services 25.0 h/ 0.6 25.6(including Laboratory Testing) (25.0) (25.0)
6. Equipment for Vapor Recovery 20.5 12.9 33.4System (Stages 0, I & II) (17.4) (17.4)
7. I/M High Volume Inspection 10.X- 10.2Stations (0.0)
8. Land 3.3 3.3(0-0)
TOTAL 29.4 0.6 234.0 822.7 1,086.7(25.1) (0.5) (194.4) (220.0)
Note: Figures in parenthesis are the respective amounts financed by the Bank loan.N.B.F.: Not Bank-Financed.
A/ Established commercial practices for private owners of high-use vehicles and private garages.
h/ Selected on the basis of proposals from a short-list of consultants.
so
Account, and the statements of expenditure, would be audited annually by independent auditors inaccordance with the policies, procedures and guidelines that have been agreed to between the Bankand the General Secretariat of Comptroller of the Federation (SECOGEF). All the executing agencieswould submit their required audit reports to the Bank no later than six months after the end of thefiscal year, which is December 31. Agreement was confirmed during negotiations that the projectaccounts would be audited using procedures acceptable to the Bank in line with the provisions of theNovember 1991 audit agreement with the SECOGEF (para. 3.1(m)).
M. Project Supervision, Monitoring and Evaluation
2.89 The CMPCCA Technical Secretariat would be responsible for monitoring implementation ofall project components, evaluating the impact of the measures supported by the proposed project andof the remaining measures of the Government's mobile-source program, and preparing the ProjectCompletion Report. Agreement on the timetable for the initiation, completion and discussion with theBank of tech .ical assistance and studies set forth in Annex 3, the implementation indicators given inAnnex 9 and the impact indicators presented in Annex 10 was confirmed during negotiations (para.3. 1(n)).
2.90 Annual Reviews. Agreement was confirmed during negotiations that the annual reviewswould be held each year in September. The annual reviews would provide an opportunity for theGovernment and the Bank to discuss, among other things: (a) progress in carrying out theGovernment's Integrated Program Against Air Pollution in the MCMA, in particular with regards toits elements dealing with fuels, the transport sector, and research and training and possible revisions,if required, in light of the results of the transport policy and management and scientific components;(b) effectiveness of the CMPCCA Technical Support Team and its long- and short-term consultants;(c) progress of technical assistance and studies and follow-up actions, if required; (d) travel demandmanagement; (e) emission standards; (f) I/M system progress, and its effectiveness; (g) vaporrecovery system progress, and its effectiveness; (h) the performance of the lines of credit (includingadequacy of terms, interest rates, spreads, status of demand, use of reflows, and the effectiveness ofvehicle replacement policies); (i) compliance with project implementation indicators based on Annex9; (j) impact of the proposed project and the Govermnent's Integrated Program on motor-vehiclerelated emissions based on Annex 10 and the findings of the annual environmental audits; (k)education and training; () use of funds by NAFIN and BANOBRAS and possible need forreallocation between them; and (m) survey results regarding the availability of unleaded gasoline andthe extent of misfueling and reverse misfueling. Based on the results of its discussions, the annualreviews would conclude with an agreement on an action plan for the next year following the annualreview (para. 3.1(o)).
2.91 ProJect Mid-term Review. Agreement was confirmed during negotiations that a mid-termreview would be held with the participation of the External Advisory Panel of distinguishedinternational experts in the field of air pollution in September 1994 (para. 3. I(p)). The mid-termreview would constitute the annual review for 1994. In addition to the items covered by the annualreview (para. 2.90), the mid-term review would undertake an in-depth interim assessment of progresswith project implementation in all components, based on the implementation indicators in Annexes 3and 9, and of the impact indicators based on Annex 10 and the findings of the Annual EnvironmentalAudits. Based on its assessment, the mid-term review would conclude with an agreement on changesin project implementation and a schedule for their implementation, if required.
51
2.92 Reotiny. The CMPCCA Technical Secretariat, with the assistance of the executingagencies, would prepare quarterly progress reports to be submitted by March 31, June 30, September30 and December 31 each year. The progress report would cover past achievements and comparethem with the implementation schedule shown in Annex 5 and implementation indicators set forth inAnnexes 3 and 9, and present a critical assessment of the issues arising during project execution. TheBank would monitor progress of project implementation, and the adequacy of annual budgetallocations for the various project components through normal project supervision and the regularexchange of views with the Government, the Borrower and the executing agencies. In cases ofunsatisfactory progress, progress reports would also detail proposals for adjustments and remedialactions. Agreement was confirmed during negotiations on the reporting requirements (para. 3. l(q)).
2.93 Project Supervision. Bank supervision of project execution would be particularly importantand intensive during the initial three years of the project when significant institutional strengtheningand policy decisions would be occurring. For this reason, at least three (but initially four or five)Bank supervision missions each year would be needed during that time. Staffing for these missionswould normally include the Task Manager, a financial analyst, a transport planner, and a vehicleemissions and fuel specialist. A total of about 45 staff weeks per year would be required during thefirst year, 40 staff weeks the second and third year, and 30 staff weeks thereafter until projectcompletion.
N. Benefits and Risks
2.94 Benefits. Air pollution is a major and increasing threat to the health of the MCMA'spopulation. Benefits due to its abatement include decreased incidence of illness and prematurJ deathdue to respiratory and cardiovascular illness, and improvements in the overall well-being and qualityof life of the population. Data on blood lead concentrations in children, and the effects of theseconcentrations on intellectual development and learning indicate that, viewed as an investment inhuman capital, the project could have very high returns. Increased worker productivity and schoolperformance due to a lessened incidence of respiratory disease and respiratory discomfort are alsolikely and the need to shut down industrial activity and extend the school holidays would be reduced.Non-health related benefits are expected to include increased crop yields, reduced damage to buildingmaterials and increased tourism. Perhaps the best way to assess the benefits of the program is toenvisage conditions if it were not carried out; in such case, substantial further deterioration in healthconditions would increasingly require emergency measures (such as industrial production andvehicular traffic bans) when pollution exceeds critical levels, with disastrous economic and socialconsequences. In addition to its direct benefits for Mexico, the proposed project, if successful, mayserve as a model for air quality programs in other major cities throughout the developing world. TheBank's involvement in this project would increase both the chances of its success and the rate oftransfer of the know-how to air-quality programs elsewhere.
2.95 Although, it is not possible to make precise estimates of likely air pollution reductions as aresult of the proposed project and the add!tional Government measures, some tentative estimates havebeen made for 1995, by which time most of the project sub-components are planned to beimplemented. If no actions were taken by 1995, motor-vehicle related emissions are estimated toincrease by 0.52 million toxicity-weighted tons over the 1989 level, to 1.84 million tons per year. Itthe project is implemented it would reduce emissions growth by 0.44 million tons, resulting in motor-vehicle related emissions of 1.40 million tons for 1995, offsetting to a large extent the estimated
52
emissions growth. Additional Government measures having quantifiable emissions impacts areestimated to result in a further reduction of 0.75 million toxicity-weighted tons, resulting in ameasurable net improvement in environmental conditions by 199S, despite population and economicgrowth. However, considerlng the technical and institutional risks Involved in the program, theestimated emissions reductions may well constitute a 'best case' estimate, and actual emissionreductions may be lower. On the other hand, significant unquantiflable benefits from other projectand Government measures have been omltted from the estimate (Annex 10).
2.96 Risk. The proposed project poses significant technical, operational, political, andinstitutional risks. Transport air pollution is a relatively new area for the Bank, and involves manydifficult technical issues. There is thus some possibility that the program may not fully achieve itsobjectives, or that priorities may be found, in retrospect, to have been misplaced. To minimize thisrisk, the Bank has conducted extensive sector work (see Meico - Transport Air Quality Managementin the Mexico City Metropolitan Area, Report No. 10045-ME, issued on March 9, 1992). The Bankhas also established both Internal and External Advisory Panels, and has retained expert consultants toprovide advice and guidance. The technical basis underlying the proposed project has been endorsedby the External Advisory Panel and by participants in an International Air Quality ManagementSeminar held recently in Mexico City. This seminar included senior representatives from both theU.S. and German Environmental Protection Agencies, and Mexican and international experts. Thedecision to rely on measures which have already been proven in developed countries would help tomiiinimize the risk of making a serious error, as would the heavy emphasis on studies to develop theunderlying scientific base and evaluation methodology for air quality program planning.
2.97 An important proportion of the proposed project's air quality benefits is expected to derivefrom the new JIM system, and from the promulgation and enforcement of new emission standards bySEDESOL. There are operational risks associated with the I/M system, but such risks would beminimized through: (a) initial steps toward a centralized lIM system for high-use vehicles, in whichstrict oversight should be feasible (in contrast to the existing decentralized system operated by privategarages); (b) monitoring and enforcement of the quality of inspections (by overt and covert means);and (c) the appointment of a specialist consultant to supervise the installation and initial operation ofthe system. Delays in issuing new emission standards would be minimized through the provision ofspecialist technical assistance to SEDESOL.
2.98 Air pollution is a major political issue in the MCMA, and the pressure of public opinion hassometimes led to hasty ad-hoc decisions. Growth in population and economic recovery are likely tomask the success in emissions reductions achieved, so that the potential for further hasty decisions issignificant. Nevertheless, the publication of the Government's 'Integrated Program Against AirPollution" constitutes a promising first step in making the public aware of the complexity and thelong-term nature of the problems and their solution. The decision to increase the price of leaded andunleaded gasoline by 55% and 23% respectively in November 1991, the President's commitment tothe program to use LPG and CNG for passenger and freight vehicles, and ongoing initiatives toaddress industrial pollution are evidence that political commitment is strong, and supported by theweight of public opinion.
2.99 The creation of the CMPCCA and its Technical Support Team was a major step forward, butit will take time to build up staff numbers and experience. However, it is planned to make extensiveuse of private sector consultants and contractors to assist the CMPCCA Technical Secretariat, DDF
53
and SoM agencies to carry out many project sub-components. Consequently, even if the build-up ofinstitutional capacity is slower than hoped for in the public sector, private sector assistance will ensurethat project implementation advances; and the use of private sector contractors to assist with theenforcement of emission standards and to monitor the effectiveness of the I/M program, for example,should ensure that project benefits are achieved to the maximum extent practicable.
mII. AGREEMENTS REACHED AND RECOMMENDATIONS
A. Agreements Reached During Negotiations
3.1 During negotiations, agreement was reached or confirmed on the following matters:
(a) That the Government would: (i) provide unleaded gasoline sufficient to meet demand inthe MCMA throughout project implementation; (ii) ensure that the rates of misfueling ofcatalyst-equipped private and public transport vehicles in the MCMA do not increasefrom the present level; (iii) make its best efforts to reduce such misfueling rates and toresolve any problems of reverse misfueling; (iv) cause the CMPCCA to carry out,through independent consultants and under terms of reference satisfactory to the Bank,an annual survey of the availability of unleaded gasoline and the extent of misfueling andreverse misfueling in the MCMA; and (v) make the results of the surveys available tothe Bank for the annual reviews (para. 1.24);
(b) If the Gasoline Project of PEMEX, financed by the Export-Import Bank of Japan is notimplemented, the Bank may suspend disbursements under its loan (para. 1.69);
(c) Beginning in January 1993, all high-use vehicles in the MCMA, and the Governmentvehicles in the DF, would be inspected at high-volume inspection stations or one of the13 DDF-run stations, and private cars could also use these stations (para 2.12);
(d) The existing private inspection stations in the MCMA would be required to acquire andinstall computerized emissions analyzers by January 1993 (para 2.12);
(e) That: (i) by January 1, 1993, licenses to operate taxis in the MCMA would not beprovided or renewed for taxis that are more than six years old; (ii) new taxis financedunder the program would meet Mexican emission standards for model-year 1993 andonwards; and (iii) the Bank would need to be satisfied as to the following items formninibuses and trucks: (1) policies for vehicle replacement, conversion to LPG or CNO,re-engining, and retrofitting, and (2) measures to avoid the continued use of 'replacedvehicles' as high-use vehicles in the MCMA beyond the age limits sdpulated in theGovernment's vehicle replacement program (para. 2.16);
(f) That the CMPCCA Technical Support Team would form a Working Group betweenPEMEX, the DDF and the SoM no later than December 1, 1992 to coordinate thegasoline vapor recovery program (para. 2.18);
54
(g) The Government would provide adequate counterpart funding for the project(para. 2.34);
(h) That: (i) the DDF would provide through the implementation period of the projectbudgetary allocations sufficient to cover, at least, the cost of 25 professionals of theTechnical Support Team and its operational cost; (ii) the CMPCCA, with the assistanceof its Advisory Council, would develop a training program for the staff of the TechnicalSupport Team, and of executing agencies; and (iii) progress with the training programwould be discussed during the annual reviews (para. 2.43);
(i) Arrangements for credit lines including: (i) BANOBRAS' and NAFIN's operating rulesfor the credit lines; (ii) eligibility criteria for PFls; (iii) general terms of relendingcontracts between NAFIN, BANOBRAS and PFIs; (iv) information to be provided to theBank for authorizing sub-loans; (v) lending rates and terms to PFIs and finalbeneficiaries, including spreads; (vi) that BANOBRAS and NAFIN carry out theirpromotional campaigns; and (vii) that sub-loan reflows would be used during the graceperiod of the Bank loan to finance additional vehicles (including buses), conversions, re-engining and retrofitting, and related investments authorized by the CMPCCA whichcould be financed through credit lines (para. 2.74);
(j) Procurement arrangements (paras. 2.77-2.82);
(k) Withdrawal applications would be made on the basis of statements of expenditures forcontracts costing less than US$1.0 million equivalent for civil works and goods, andUS$100,000 equivalent for consultant services (para. 2.85);
O Retroactive financing of up to US$7 million equivalent would be available for projectexpenditures incurred in accordance with Bank procurement guidelines after May 1,1992 (para. 2.87);
(im) That (i) NAFIN, the CMPCCA, BANOBRAS and the rest of the executing agencieswould maintain adequate records to reflect their operations and financial situation, inaccordance with sound accounting principles applied consistently; and (ii) projectaccounts would be audited using procedures acceptable to the Bank in line with theprovisions of the November 1991 agreement with the SECOGEF (para. 2.88);
(n) (i) Timetable for the initiation, completion and discussion with the Bank of technicalassistance and studies; (ii) implementation indicators; and (iii) impact indicators(para. 2.89);
(o) That: (i) annual reviews would be held each year in September and that the annualreviews would conclude with an agreement on an action plan (para. 2.90);
(p) A mid-term review would be held with the participation of the External Advisory Panelin September 1994, and would agree on changes in project implementation and aschedule for their implementation, if required (para. 2.91); and
55
(q) Quarterly progress reports would be submitted to the Bank by March 31, June 30,September 30 and December 31 each year (para. 2.92).
B. Condition for Loan Effectiveness
3.2 Presentation to the Bank of satisfactory signed and legally binding contractual arrangementsbetween NAFIN, the Guarantor, the Environmental Trust Fund, and executing agencieswould be a condition for loan effectiveness, plus presentation of pertinent legal opinions(para. 2.39).
C. Events of Default
3.3 The following would be an event of default:
(a) a significant change to the CMPCCA's functions, and the size and composition of theCMPCCA's Technical Support Team that would reduce its ability to carry out theresponsibilities currently assigned to it (para. 2.43); and
(b) a significant change to the functions of the Environmental Trust Fund that would reduceits ability to carry out the responsibilities assigned to it that are relevant to theachievement of project objectives (para. 2.45).
D. Recommendations
3.4 On the basis of the foregoing agreements and condition, the project would be suitable for aBank loan of US$220 million equivalent for 15 years, including 5 years of grace, at the Bank'sstandard variable interest rate.
Pal oft30 56
MEXICO
TRANSPORT AIR QUALITY MANAGEMENT IN THEMEXICO CITY METROPOLrTAN AREA
UPDATED SUMMARY OF SECTOR REPORT'
I. TBE AR POLLU ON PROBLEM
A. Contest
1. The Mexico City Metropolitan Area (MCMA) is one of the most populous urban areas in theworld and has a very serious air pollution problem. The MCMA population has grown from lessthan 1 million at the beginning of the century to 15 million in 1990, and is projected to reach 20million by 2010. With one sixth of the nation's people, the MCMA accounts for about 36% ofMexico's gross national product.
2. The MCMA is located at the southern end of the Valley of Mexico, at an average altitude ofsome 2,200m, and comprises the Federal District (Distrito Federal or DF) and 17 municipalities inthe neighboring State of Mexico (SoM). Currently, about 55% of the MCMA population resides inthe DF. The division of responsibilities for MCMA affairs between the Federal District Department(DDF) and the State of Mexico (SoM) has hampered planning and infrastructure provision. However,the recent establishment of a Metropolitan Transport Council (COTAM) and the Commission for thePrevention and Control of Environmental Pollution in the Metropolitan Area of the Valley of Mexico(CMPCCA) is expected to lead to Improved integration between jurisdictions, and between transportand air quality management.
B. Pollutant Concentratons and Effects
3. The critical air pollutants in the MCMA are ozone (O0), fine particulate matter, carbonmonoxide (CO) and lead. Ambient levels of the first two far exceed health-based norms, and theirconcentrations are increasing or holding constant, despite significant pollution control efforts.Ambient lead levels have been reduced greatly in the last few years to levels near or belowinternational norms, but further reductions are desirable. Toxic and carcinogenic air contaminantssucb as benzene and formaldehyde are also of concern, but quantitative data are unavailable.
4. Ozone - Exposure to high ozone levels causes irritation of the respiratory tract, and reduceslung function. Long-term ozone exposure is suspected of causing irreversible deterioration in lungstructure, similar to emphysema. Ozone also retards plant growth and damages materials exposed toit. Ozone concentrations in the MCMA are the highest currently being measured in any city in theworld, reaching more than three times the accepted national and international norms. During 1991,the Mexican ozone standard of 0.11 ppm was exceeded In the MCMA on more than 889% of days Inthe year. Ozone is a secondary pollutant, formed by the reaction of oxides of nitrogen (NOx) withsunlight and volatile organic compounds (VOC) in the atmosphere. Both NOx and VOC are
I MEXICO - Transport Air Qualty Manaoment in the Mexico City Metropolu Ana, Sector Study(World Bank Report No. 10045-ME, dated Mrch 9, 1992). The Sumary ta into account the commentscivod fom Xt Mexican Government and the Bank's External Adviory Panel, comprising Moss. M. Walsh
(Chiman, H Brvo, T. Cackette, A. Friedrich, R. Sawyer, and P. Slpman.
,ANNEX-157 Page 2 ot 30
necessary to produce ozone: either NOx or VOC availability may be the limiting factor in ozoneproduction, depending upon their relative concentrations. Although control of both pollutants isdesirable, the available evidence suggests that NOx Is usually the limiting factor in ozone productionin the MCMA, and that special emphasis should therefore be placed on reducing NOx emissions.This conclusion was supported by the Bank's External Advisory Panel, and is consistent with a reviewof U.S. ozone control experience2 .
5. Suspended Particulate Matter - Fine particulate matter less than 10 microns in diameter(PM1O) results from direct emissions of smoke and fumes, dust stirred up by vehicles, windblowndust from devegetated areas, and secondary particulate matter formed in the atmosphere from primarypollutants. Exposure to high PM1O levels results in increased rates of illness and death from respira-tory causes. Both peak and annual-average particulate levels in the northeastern part of the MCMAfar exceed the Mexican health advisory level. The Mexican 24-hour particulate standard of 275ygle3 was exceeded in the northeastern area on more than 80% of the days in 1991. Exceedanceswere also frequent in the southeast, central, and northwestern portions of the MCMA. The limiteddata on particulate composition suggest that the sources are primarily combustion and secondaryparticulate in the central MCMA, while dust is also a major factor in outlying areas.
6. Carbon Monoxide - Carbon monoxide (CO) is formed by the incomplete combustion ofcarbon-containing fuels. When inhaled, CO binds to hemoglobin in the blood, deactivating it. Thisprevents the transport of oxygen through the body, and reduces the oxygen supply to sensitive tissuessuch as the brain, heart, and linings of blood vessels. The results of moderate CO toxicity includeshortness of breath, increased blood pressure, headaches, and difficulty in concentration. CO effectsare aggravated by high altitude and are most significant in pregnant women, young children and thosesuffering from heart or respiratory disease - groups making up a large percentage of population in theMCMA. In the MCMA, nearly all CO emissions are produced by gasoline vehicles. In 1991, COconcentrations exceeded the Mexican 8 hour average standard of 13 ppm 63 times in the northwestportion of the MCMA, and less frequently in other areas. The number of CO violations experiencedhas been increasing in recent years. Human exposure studies have shown that pedestrians, roadsidevendors and vehicle drivers and passengers are exposed to CO concentrations at street level well inexcess of the standards.
7. Ined - The major source of atmospheric lead in the MCMA is combustion of lead antiknockcompounds in gasoline. Lead is a cumulative, systemic toxin with effects on blood pressure regula-tion and on the nervous system. At sufficiently high levels in the blood, lead acts as an acute toxin,damaging kidneys, the nervous system, and the brain. However, changes in enzyme chemistry,statistically significant effects on intelligence test results in children, and significant effects on bloodpressure in adult males have been demonstrated at blood lead levels well below those that produceacute toxicity. Since adult blood pressure levels are strongly related to death rates from stroke andheart disease, chronic exposure to lead would be expected to increase deaths from these causes.Petroleos Mexicanos (PEMEX) has already taken action to reduce the lead content of gasoline sold inthe MCMA, and new emission standards requiring the use of catalytic converters in new vehiclesrequire these vehicles to use unleaded gasoline. Although current levels of atmospheric lead in theMCMA are near or below international norms, the current consensus among scientists is that noamount of lead in the environment can be considered safe.
2 J. Seinfeld et al. Rethinking the Ozone Problem in Urban and Regional Air Pollution, National RewearchCouncil, 1991.
Page 3 of 30 58
8. Relative Weighing of Pollutants - Not all pollutant em' * Table 1sions are equally toxic. Using health-based environmental norms as Approximate Toxicity Weighinga starting point, a set of weights has been developed which roughly Factors for Different Pollutantreflect the relative noxiousness of different pollutants. These Speciesweights assign the highest value (per ton of emissions) to lead, fol-lowed by NOx, PM1O and VOC Crable 1). This approach was not elativesupported by the External Advisory Panel, who argued that it might Pollutant Weightresult in inappropriate "trading off" reductions in one pollutant for =another, and that the scientific basis for establishing relative Lead 85pollutant weights is not yet adequate. The Panel recommended lfocussing on pollutant-specific abatement measures instead. Nox 4.7Unfortunately, such pollutant-specific analyses require arbitrary and PMIO 2.3subjective cost allocations when faced with measures having Isignificant benefits for more than one pollutant, as most of the VoC 1.8measures considered in the Sector Report do. Despite its Sox 1.4weaknesses, the weighting method allows a rational evaluation andcomparison of measures affecting multiple pollutants, and it has Dust 0.9therefore been retained. While the assignment of weights to the co 0.04d!fterent pollutants is necessarily somewhat uncertain, given thelimited scientific base, the weights chosen are consistent with theavailable data and with the consensus of expert opinion as to airpollution priorities. Further, a sensitivity analysis has shown that the study's conclusions are robustwith respect to reasonable changes in the numerical weights.
9. Health and Economic Impacts - Quantitative data on the health and other economic impactsof air pollution ir. the MCMA are only beginning to be developed. A rough preliminary analysis bythe Bank puts the economic damage from the health impacts of air pollution in the MCMAconservatively at US$ 1.1 billion per year. Substantial disruptions to the economy and to citizens'daily lives occur due both to the direct consequences of pollution and the effects of remedialmeasures. Examples include the closure of the city center to vehicle traffic, the closure of schools,and the temporary shutdown of industrial establishments representing a large fraction of totalindustrial production in Mexico when ozone concentrations are expected to reach critical levels. InMarch 1991, a major oil refinery in the Federal District (DF) was permanently closed in order toreduce emissions. Users of private automobiles have been affected predominantly by a measurecalled "Hoy no Circula" which prohibits the circulation of motor vehicles on one work-day per week.This ban is extended to two days per week during critical pollution episodes.
C. Geography and Meteorology
10. The effects of air pollution in the MCMA are aggravated by geography since the mountainssurrounding the city tend to trap pollutants, resulting in high concentrations. The valley is alsosubject to frequent thermal inversions, which further concentrate pollutants, especially during the drywinter season.
59 1ANNEXPage 4 of 30
D. Air Quality Monitoring and Modeling
11. Quantitative evaluation of the effects of emission reduction strategies on pollutant concentra-tions will require the use of complex air quality models. One critical shortfall in the present airquality program is the weakness of the scientific base, especially the understanding of atmosphericchemistry, pollutant dispersion, and transport. Efforts to develop useful air quality models for theMCMA, and the application of these models in the evaluation of alternative policy scenarios are underway as part of the "Global Air Quality Study" being conducted by the Instituto Mexicano del Petroleo(IMP) and the Los Alamos National Laboratory in the U.S. The results of this study will not beavailable for some time, however. Additional work is also needed to address short-term issues suchas the relative importance of NOx and VOC control, and to develop models of human exposure andhealth effects.
12. Improved air quality monitoring is needed to measure the severity of the problem, the effectsof control measures, and to supply essential inputs for air quality modeling. The present air qualitymonitoring system, with the additions supported by the Bank as part of the Government's EmergencyAir Pollution Control Program, appears adequate to characterize air quality in the MCMA and tosupply much of the datal needed for modeling purposes. However, several monitoring sites in theupwind areas of the Valley of Mexico would be desirable, and high-intensity sampling will berequired during specific pollution episodes to generate data to validate the models.
E. Emissions Inventory
13. Available data on the sources and Table 2amounts of pollutant emissions in the MCMA Estimated Annual PPlutant Emissions in
(the "emissions inventory") are incomplete, and the MCMA in 1989
may underestimate emissions of somepollutants. Estimates of total MCMA emissionsduring 1989, based on the Government Toxicity-emissions inventory, are shown in Table 2. l TosritdMajor sources of pollutant emissions are road Pollutant Tonsyr tons/yr
transport, industry, commercial and service t
sector activities, waste disposal, and natural Lead 1,300 110,500source-s (including vegetation and windblown Nitrogen oxides (NOx) 138,000 648,600dust). Road transport is by far the mostimportant single source, accounting for 79% of PM1O 35,000 80,500the total mass of pollutant emissions (48% on a Volatile organictoxicity-weighted basis). Entrained dust stirred compounds 5VOC)up by vehicles accounts for another 5% of un- compounds (voc) l
weighted emissions (8% on a toxicity-weighted Sulfur oxides (SOx) 194,000 271,800
basis). Vehicle-related emissions therefore llaccount for 84% of the total on a mass basis Dust 420,000 378,000(56% on a toxicity-weighted basis); non-road Tota emissions 2,563,000transport (railroads and aircraft) accounts forless than 1% of the emissions inventory (figure1).
ANEX-1Page S of 30 60
11. TRANSPORT AND AIR POLLUTION
A. Emissions From the MCMA Transport System
14. The high level of transport emissions is attributable to the large number of road vehicles in use;poor vehicle maintenance; past lack of stringent pollution control standards; unfavorable fuelproperties; rapid urbanization (resulting in increased demand for road transport); unpaved roads in theperipheral areas (generating dust); and localized traffic congestion (resulting in pollution-producing'stop-go" driving conditions). Furthermore, Government policies encourage the ownership and use ofprivate cars through a variety of measures.
15. Some 50-70% of the total mobile-source emissions of each pollutant are produced by high-usecommercial vehicles such as trucks, taxis and public transport vehicles. On a toxicity-weighted basis,in 1989, trucks accounted for 37% of mobile source emissions, taxis for 8%, public transit vehiclesfor 17%, and private cars for 38%. These are equal to 17%, 4%, 7%, and 18% of total toxicity-weighted emissions in the MCMA, respectively (Figure 1). On a toxicity-weighted basis, gasolinevehicles accounted for 84% of total mobile-source emissions, while diesels accounted for 16%. Thehighest-polluting modes (on a per passenger-km basis) were taxis and privatelcars (Figure 2),followed by public transport vehicles .vith internal combustion engines (combis, ninibuses and buses).As Figure 2 also shows, future emission-controlled vehicles will produce much lower levels ot
Flgure 1Breakdown of Pollutant Emissions Between Different Mobile Sources, 1989
Volatile Organics Oxides of NitrogenTOW W"M (tO%) §/TGoabVmnbu (11%)
P|lv cars (28%) Gas.Tr (t2%)PP9c a s m)
DbZlObudc (1%)t-I_ oow p . W)(t2% ow tm (i
NnOp.48%) ObVwtw' () -N n.ransup. (35%)
Carbon Monoxide Total Emissions(tDxidty weighted)
Gas.Trudcs (13%) Yxonbmn~.(%
((2%)8%)
61 ,ANNEX IPap 630
emissions. Electric transport Figure 2modes, such as the metro, produce Toxicity-weighted Pollutnt Emissions in Gtams per Passengoer4m,no direct pollution; although the by Vehicle Typoproduction of electricity to run themdoes result in emissions, these areless than would be produced by 4internal combustion engines. 40 La
u 44 CPfvCw16. Table 3 shows the distribution X Tom
of passenger trips and vehicle travel am"o bjr mode in 1989. There were an a [ ]mms
estimated 2.6 million cars in the I v * OWMCMA. This figure has been 15 aincreasing rapidly in recent years,due to the improving economic 10s 3climate and to Government policies s 1promoting vehicle ownership. Cars 0
carried some 24% of totakdaily O dpassenger trips (34% of total dailypassenger-km), but accounted for71% of total vehicle-km travelled bypassenger transport vehicles. A fleet of around 67,000 taxis carried over 1 million passenger tripsper day in the MCMA in 1989. The Government has begun a program to replace all taxis with new
Table 3Mode Distibution of Passnger Tansport in the MCMA, 1989
Passenger trips Pssener Vehide-km l
Mode millions percent millions perent millions prent
lwvateCan 7.74 C24.3% 76.2 34.1% 50.83 71.3%
Taxis 1.25 3.9% 6.7 3.0% 9.60 13.5%
DF Combis 6.98 21.9% 34.2 15.3% 5.70 8.0%SoM Combis 1.84 5.8% 11 4.9% 1.84 2.6%
DF Minibuses 2.3 7.2% 13.1 5.9% 1.01 1.4%SoM Minibuses 0.3 0.9% 1.9 0.9% 0.14 0.2%
Ruta 100 4.32 13.5% 21.6 9.7% 0.54 0.8%SoM Buses 1.82 S.7% _ .5 7.8% 0.88 1.2%
Metro 4.81 15.1% 38.9 17.4% 0.65 0.9%Troleybus 0.54 1.7 2.3 1.0% 0.065 0.1%
iAght Rafl 0.01 0.03% 0.1 0.04% .0020 .003%
Total Colctive 22.91 71.8% 140.6 62.9% 10.82 15.2%Transport_l
AUl modes 31.91 7 100.0% 223.5 100.0% 71.25 100.0%
Source: International Consultant Team Estimate.
ANNEX 162Page 7 of 30
vehicles having emission controls. Before this program, taxi emissions per passenger-km were ex-tremely high, due to the high level of emissions per vehicle-km and to the low average occupancyrate. The previous taxi fleet was old and in poor condition, with over 60% of the fleet more than 10years old, and 93% more than 6 years old.
17. Collective transport accounted for an estimated 72% of passenger trips (63% of passenger-km),but only 15% of the vehicle-kilometers travelled. The operational combi2' fleet was estimated atabout 38,000 units, and carried some 8.8 million passenger trips per day in 1989 - more than anyother single mode. Due to their small capacity, combis contribute disproportionately to congestionand the Mexican Authorities are encouraging their replacement by minibuses (typical capacity 23seated passengers). About 7,000 minibuses carried about 8% of daily passenger trips (7% of dailypassenger-km). Buses carried over 6 million passengers per day and, in terms of daily passengersand passenger-km, were the second most important public transport mode. The DF also has amodern metro, extending over 141 route-km and comprising eight lines. The metro system carried anaverage of 4.8 million passenger trips per day in 1989, about 17% of total MCMA person trips. Atrolleybus network extends for about 522 km, with 27 routes, but fulfills only a minor role inproviding passenger tr msport (0.5 millic n passenger trips per day); a single 12.5 km light rail line inthe DF carries only about 10,000 passengers per day. X
18. The past lack of coordination between the DDF and the SoM has created a metropolitantransport system with major discontinuities at the boundary between the two jurisdictions. Vastnumbers of passengers are forced to interchange between metro and bus at large terminals locatedclose to the boundary; few bus services operate across the boundary between the SoM and the DF.COTAM is addressing this issue and is expected to propose measures to introduce cross-boundaryservices and to harmonize regulations in the two jurisdictions.
19. The MCMA is the largest source, destination, and transhipment point for freight traffic inMexico. About 200,000 gasoline trucks and 60,000 diesel trucks are estimated to be operational inthe MCMA on any given day. In addition, thousands of long-haul trucks from throughout the nationenter or pass through the metropolitan area each day. Together, long-haul and local trucks areestimated to contribute about 37% of total pollutant emissions from the transport sector. Despite theirlarge contribution, trucks have received little attention as pollution sources, and reliable statistics ontruck traffic characteristics, fuel consumption and emissions are not available.
B. Vehicles
20. Vehicle Age - Much of the vehicle fleet is relatively old - for example, the median age for bothprivate passenger cars and trucks in the DF was 9 years in 1990; some 10% of the cars and trucks Inthe DF were 23 years old or more. This age profile was primarily related to economiccircumstances, but is aggravated by the vehicle tax structure, which imposes a high tax on newvehicles, declining steeply with vehicle age. Greatly increased sales of new vehicles in the last threeyears have probably reduced the average age, but many older vehicles remain in the fleet. The largenumber of old vehicles contributes disproportionately to pollution, due to their typically poor state ofmaintenance and lax or non-existent pollution standards when they were built.
' Vehicles with a capacity of about 11 pasewgers.
63 AmEX 1Page 8 of 30
21. Vehicle Emission Standards - Responsibility for issuing and enforcing new-vehicle emissionstandards lies with the Inst'tuto Nacional de Ecologia (NE) within the recently created Ministry ofSocial Development (SEDESOL). These responsibilities were transferred from the Ministry of UrbanDevelopment and Ecology (SEDUE) which has ceased to exist. New passenger cars and light-dutytrucks sold in Mexico have been subject to emission standards since 1975, but only in 1991 did thesestandards become stringent enough to require catalytic converters. Model years 1991 and 1992represent a transition period, with an intermediate standard; compliance with Mexican 1993 modelyear standards will require vehicles to be equipped with three-way catalytic converters andcomputerized engine control systems. Emission standards for new medium- and heavy-duty gasolinevehicles have not yet been issued, so that emissions from new vehicles in these groups are effectivelyuncontrolled (except for minibuses in the DF, which are being equipped voluntarily with catalyticconverters under a 1991 agreement with thi DDF). The diesel engines used in buses and heavytrucks are subject only to a smoke opacity standard. Unit emissions from these heavy-duty vehiclesare relatively high.
22. The declared policy of the Mexican Government is to move toward full compatibility with U.S.emission standards for both light- and heavy-duty vehicles. The Mexican 1993 exhaust emissionstandards for light-duty vehicles are numerically equal to those presently in force in the U.S., but arenot identical, as the U.S. standards include many provisions such as evaporative emissions,compliance over the useful life of the vehicle, emissions warranties, recall of non-complying vehiclesetc. which have not yet been incorporated in the Mexican regulations. The Mexican Authoritiesintend to adopt these other elements of the U.S. regulations, as well as regulations covering medium-and heavy-duty vehicles, in 1992 and 1993. The timing for adoption in Mexico of the more stringentstandards recently enacted in the U.S. Clean Air Act Amendments of 1990 remains to be determined.INE's present vehicle emissions laboratory needs to be expanded.
23. Fuel Economy Standards - Mexico adopted fuel economy standards for light-duty vehicles inthe early 1980s and the present fleet-average fuel economy requirement of 11 km/liter is in line withsimilar U.S. standards.
24. Enission Levels of Vehicles In-service - Very little information is available on emissions fromvehicles actually in service in the MCMA. The emission factors used in the present inventory arebased on U.S. data, and the results from the very small number of in-service vehicles subjected toemission tests in Mexico have shown much higher emissions. Extensive testing of in-service vehiclesis needed urgently in order to generate better emission factor estimates and to provide an improvedbaseline against which to evaluate vehicle emission reduction programs.
25. Inspection/Maintenance Systems - The Mexican Authorities enacted vehicle inspection andmaintenance CM) requirements in 1988. However, until recently the system design left the pass-faildecisions to individual mechanics. This approach has been found to result in a very high percentageof improper inspections .n the U.S.. The Mexican Authorities, as a temporary measure, haverecently begun requiring taxis and minibuses to be inspected in one of the 13 public stations operatedby the DDF, using new computerized emissions analyzers to make the pass/fail determination.Concessions have also beep, issued for 24 high-volume, inspection-only facilities known as'Macrocentros' which wIll also incorporate computerized emission analyzers. All high-usecommercial vehicles in the MCMA and Government vehicles in the DF wIll be required to beinspected in these facilities when they begin operation in January 1993. Private cars could also usethese faclities. Private garages inspecting private cars only wIll be required to use computerizedemissions analyzers beginning in January 1993, and wDi also be subject to stepped-up surveillance
ANNEXI 64Page 9 of 30
and enforcement activities. Steps to improve mechanic training and quality of repairs, especially fornew high-technology vehicles, are also being developed.
C. Fuels
26. Consumption - Annual gasoline consumption in the MCMA is about 5.8 billion liters, and isincreasing at about 8% per year; annual diesel consumption is about 0.7 billion liters and has declinedslightly over the last decade. Two grades of gasoline are available: Nova and Magna Sin. Nova is alow-octane leaded grade which meets the needs of vehicles without catalytic converters; Magna Sin,introduced in 1990, is a higher-octane, unleaded gasoline. More than 90% of the gasoline sold in theMCMA is Nova, although this figure is projected to decline to 50% or less during the 1990s as newvehicles, requiring Magna Sin, come into the fleet. PEMEX is unable to satisfy the demand forunleaded gasoline from domestic refineries and is obliged to import supplies. However, large-scalerefining investments to increase unleaded gasoline production are underway, partially financed by theExport-Import Bank of Japan under a co-financing agreement with the Bank.
27. GasoUne Pricdin - Gasoline pricing is determined by the Government. Until November 1991,retail prices of leaded (Nova) and unleaded (Magna Sin) gasoline were set at Mex pesos 710 and Mexpesos 1,000 per liter, respectively (equivalent to US$0.87 and US$1.22 per gallon respectively). Thelarge price differential encouraged misfueling of catalyst-equipped vehicles with leaded gasoline - apractice which destroys the effectiveness of the catalyst. In November 1991, the Government raisedthe prices of leaded and unleaded gasolines by 55% and 25%, respectively - bringing them to 1,100and 1,250 Mexican pesos per liter (equivalent to US$1.34 and US$1.52 per gallon). In April 1992the price of Magna Sin was adjusted downward slightly to 1,220 pesos per liter, equivalent to US$1.49 per gallon. The price differential has thus been reduced from 290 pesos (40%) to 120 Mexicanpesos (11%).
28. Results from a recent survey carried out in the MCMA by independent consultants showdetectable levels of lead in the tailpipes of 12% of the catalyst-equipped private vehicles sampled, and13% of the public transport vehicles. - .e same survey, 28% of the owners of non-catalyst vehiclesreported reverse misfueling, use of Magna Sin in vehicles that do not require unleaded gasoline.Shortages of Magna Sin have been a problem, 37% of private car drivers and public transportoperators stated that they had problems finding Magna Sin. The reported supply shortfall may havebeen a significant factor for the present misfueling rates.
29. Both misfiieling and reverse misfueling are undesirable. Misfueling damages the catalyst andoxygen sensor in modern emission-controlled vehicles, permanently increasing emissions. Reversemisfueling is wastefil, since non-catalyst vehicles do not require it, and Magna Sin is more expensivethan Nova to refine. It is also undesirable from an environmental standpoint, as Magna Sin (in ordewto achieve the higher octane specification) contains a higher fraction of aromatic hydrocarbons thanNova. Ihese compounds contribute to ozone formation, and some (e.g. benzene) are alsocarcinogens. Reverse misfueling on a large scale would also reduce the effectiveness of gasolinereformulation strategies aimed specifically at older vehicles, which would otherwise be an attractiveoption for emissions control. Finally, since Magna Sin supply is limited in the short-term, large-scalereverse misfueling may lead to shortages, and therefore cause catalyst-equipped vehicles to bemisfueled.
30. Based on the above findings, it will therefore be necessary to adopt gasoline pricing and otherpolicies which strike a balance between misfueling, reverse misfueling, and Magna Sin availability.
ANNEX 65 Page 10 of 30
First priority in this balance should be given to ensuring Magna Sin availability. This may requirethe maintenance of a small price differential between Nova and Magna Sin, while measures are takento minimize the resultant misfueling through public information campaigns and increased enforcementvia the I/M program. Magna Sin availability should be monitored closely, and periodic surveysconducted of misfueling and reverse misfueling rates in order to guide these policies.
31. Gasoline Formulation - Changes in gasoline formulation can affect vehicle emissions. Toreduce lead emissions in the MCMA, PEMEX has already reduced the lead content of Novasignificantly, to an average of 92 mg/liter (0.35 g/gal) in a recent survey. PEMEX is also blending5% MTBE (an oxygenate) into both leaded and unleaded gasoline to reduce vehicle HC and CO emis-sions, and to make up some of the octane lost by reducing lead. One promising solution to themisfueling problem would be to eliminate leaded Nova gasoline entirely, producing instead a low-octane unleaded grade ("Nova Sin"). At an octane level of 81 RON, Nova Sin would cost less toproduce than Magna Sin, and could have lower aromatic content. Given the low lead concentration inNova already, the octane loss from removing it entirely would be small - about three RON. Sincesome older vehicles designed for leaded gasoline can suffer valve seat damage if operated on unleadedfuel for prolonged periods, it might be necessary to include some non-lead additive for valve seatprotection.
32. The Bank's External Advisory Panel has recommended that PEMEX eliminate the lead in Novaas soon as possible, in order to protect health and the enormous investment being made in catalystvehicles. The Panel has also recommended reducing the Reid vapor pressure (volatility) of gasolineby 1-2 PSI to reduce evaporative emissions. These and other possibilities for gaso!ine reformulationare being studied as part of the environmental impact evaluation for the PEMEX gasoline projects,and PEMEX has agreed to implement the recommendations of this study.
33. Diesel Fuel Formulation - Reducing the sulfur content and increasing the cetane number ofdiesel fuel can help to reduce particulate and NOx emissions and prolong engine life. Low-sulfurdiesel fuel is also essential for certain advanced diesel emissions controls. Standard Mexican dieselfuel contains up to 1% sulfur; in the MCMA, PEMEX sells a special 0.4% sulfur fuel as "DieselEspecia.". Construction is underway of several desulfurization units to reduce the sulfur content to0. 1%, but still lower sulfur levels would be required to meet U.S. 1994 emission standards for heavy-duty diesel engines. Although the cost-effectiveness of U.S.-specification fuel, considered by itself, ismarginal, failure to provide the necessary low-sulfur fuel could prevent Mexico adopting the strictU.S. 1994 emission standards in the future.
34. Gasoline Vapor Recovery - The storage, transportation and marketing of gasoline result insubstantial hydrocarbon emissions in the form of gasoline vapors. These can be prevented throughthe addition of floating lids to storage tanks, and the use of vapor recovery systems. The installationof gasoline vapor recovery systems in the MCMA would be supported under the proposed TransportAir Quality Management Project for the Mexico City Metropolitan Area.
35. Electridt - The MCMA passenger transport system already makes considerable use of electrictraction for metro, trolleybuses and light rail. The electricity is generated both inside and outside theValley of Mexico, primarily by power stations using either natural gas or residual oil as fuel; and is asource of NOx and SOx emissions in the MCMA.
36. Alternative Fuels - Potential "clean" alternative fuels for the MCMA include LPG and CNG.Both are available in quantities sufficient to support large numbers of vehicles. Some 125,000vehicles already uise LPG in Mexico, of which about 8,000 are in the MCMA. The CMPCCA has
ANNEX 166Page 11 of 30
estimated that available LPG supplies could fuel another 100,000 high-use vehicles by 1995, whUeavailable CNG could fuel 44,000 vehicles.
D. Public Transport Infrastructure
37. Government has invested heavily in public transport infrastructure, particularly the metro.Government aims to have a 175 km metro network operational by the end of 1995 (at present it is141 kms long). While emissions per passenger-km of the metro are lower than from existing combis,minibuses and buses, questions have been raised concerning the economic viability of new metrolines. No detailed analyses have been carried out of the operational and economic ranges for whichmetro, light rail and busway transit would be appropriate in the MCMA. Such analyses,incorporating consideration of all significant external effects (including air quality impacts) should becarried out. Preliminary analyses performed for this study indicate that although modernization of theexisting trolleybus system may be marginally cost-effective from an air quality perspective, extensionof the network is unlikely to be cost-effective compared to services operated by modern diesel oralternative-fuel vehicles with emission controls. i
E. Road Infrastructure
38. Roads - The road network is well developed in the DF, but road development within the SoMhas not kept pace with increasing urbanization. In the DF, there is a well established network ofprimary roads; in the SoM, there is a deficiency of east-west primary road connectdons and a lack ofmajor road connections to the rapidly developing eastern area. Unpaved roads, commonplace in theoutlying areas, inhibit efficient bus operations and generate large amounts of dust.
39. Since vehicle emissions tend to decrease with speed over the range of speeds typical in urbanareas, and since "stop-go" conditions associated with congestion tend to cause much higher emissionsthan 'smooth' traffic flow, an initial reaction is to want to build more roadspace. However, theprovision of additional road capacity tends to encourage further motorization and private travel.Unless measures are taken to manage road traffic demands, there is a danger that road constructionmay lead to higher, rather than lower total vehicle emissions. Nevertheless, there are cases whereselective road construction can bring worthwhile and sustainable transport and environmental benefits.
40. TraMc Svstem Management (TSM) - Within the DF, TSM has been applied mainly to reducecongestion. In 1990, some 2,888 intersections in the DF were controlled by traffic signals and ofthese, 810 were controlled by a computerized system. Various TSM initiatives have been taken,some of which have been successful, others of which have not been operationally successful (e.g. anetwork of with-flow bus lanes and a park-and-ride system from metro terminals).
41. The traditional application of TSM may achieve short-term capacity increases, but may alsoincrease emissions if it encourages private travel and increases vehicle-km (e.g. one-way systemsoften lengthen travel distances). If, however, TSM measures are used to "smooth" traffic flow and togive priority to high-occupancy vehicles, then significant emission benefits might be achieved.Further work is required to define a coherent TSM strategy, consistent with both traffic and airquality objectives.
67 ANNEL1Page 12 of 30
F. Demand Management
42. There are strong incentives to own and use cars: gasoline prices are still relatively low byinternational standards; parking charges are relatively low; and a "People's Car" Program wasintroduced in 1988 in which Volkswagen of Mexico agreed to build a Sedan at a preferential price forthe popular market. Furthermore, tax policy tends to encourage the ownership of old, non-emission-controlled vehicles, since tli, car ownership tax (tenencia) declines rapidly with age. There is littleincentive for car owners to switch to less polluting modes (e.g. public transport), especially asservices are nc generally geared to the convenience, service and comfort levels expected by carusers.
43. The Mexican Authorities have begun taking significant steps to reduce incentives for drivingand increase incentives to use public transport. Access to certain areas by private vehicles is alreadyconstrained by lack of parking, or the price of parking. In addition, Government's decision tointroduce "Hoy no Circula" in November 1989 was explicitly aimed at shifting passenger traffic fromprivate cars to public transport. However, a preliminary analysis of the effects of this programindicates that much of the benefit may have been eroded, as many car owners have purchased second(used) cars to circumvent the ban.
44. The recent increases in gasoline prices are an excellent step in demand management. However,a coherent travel demand strategy needs to be developed and implemented in order to limit pollutioncaused by road traffic and to manage traffic congestion. This strategy should include refinement orreplacement of "Hoy no Circr la", and further measures, possibly including: adjustments to fuelpricing policy, vehicle emissions taxes, urban tolls, area/corridor licensing (e.g. licenses could beissued only to "environmentally-friendly" vehicles), provision of premium bus services and on-streetpriorities, possibly in conjunction with park-and-ride facilities, further pedestrianization andstrengthened car parking policies.
G. Legal and Institutional Framework
45. LI nlfmtaework - The General Law of Ecological Balance and Protection of the Environ-ment, enacted in March 1988, constitutes the present legal framework to deal with transport airpollution in the MCMA. The law assigns a lead role to SEDUE, now SEDESOLY (in collaborationwith other Federal Ministries) in formulating environmental policy and in setting national standardsand norms, and makes the States and the DDF responsible for implementation, except for the controlof industrial air pollution in the DF, which remains a responsibility of SEDESOL. Mexico'senvironmental legislation is essentially "command-and-control" in nature, with limited reliance onmarket-based incentives. However, the recent increase in gasoline prices is perceived as beingindicative of a general willingness to place greater reliance on market based incentives. On this basis,the legal framework is considered to be adequate to deal with transport air pollution and otherenvironmental problems.
4 In May 1992, Mexico's -Congress approved the transformation of SEDUE into a powerfil Ministry ofSocial Development (SEDESOL), which will be responsible for the execution of the Government's 'solidarity'and other social and regional progmms in addition to assuming SEDUE's responsibilities in the urban policy andenvironmental areas. The latter functions are to be carried out by a National Institute of Ecology (INE) and theOffice of the Federal Counsel for Environmental Protection (PFPA), two dependencies of SEDESOL.
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46. Institutional Framewor - The planning and implementation of a program to control transportair pollution in the MCMA is greatly complicated by the fact that the problem has national, regionaland local aspects. As a result, a number of Federal, State and Municipal agencies are involved inpolicy making, and effective implementation and coordination is difficult to achieve. Since theMCMA includes both the DF and 17 municipalities in the SoM, and air pollution originates in, andaffects the entire Valley of Mexico, the problem is regional in scope, requiring common action acrossjurisdictional boundaries.
47. National Level Institutions - At the national level, the National Institute of Ecology (INE),which is a dependency of SEDESOL, sets fuel and vehicle emission standards in coordination with theMinistries of Transport and Communications, Industry and Commerce, Health, and with PEMEX, theFederal Power Commission (CFE) and the DDF. The Ministry of Finance and Public Credit(SHCP), which in early 1992 absorbed the Secretariat of Programming and Budgeting, plays a keyrole In decisions on investment and the use of external credit.
48. DF Agencies - The key agencies in the DF involved in transport air quality control are: theGeneral Directorate of Ecology (DGE), in charge of the public and private rehicle testing programs,the 'Hoy no Circula" ("Day without a Car") program and the vapor recovery systems; the newGeneral Directorate for Environmental Projects (DGPA), which constitutes the de facto TechnicalSupport "eam for the CMPCCA; the General Directorate of Urban Automobile Transport (DGAU),which is in charge of vehicle registration and grants driver, bus and taxi licenses; the GeneralDirectorate of Operations (DGO), which is responsible for traffic management and traffic signalingsystems; and the General Transport Coordinating Office (CGT) which regulates public transport andparking lots, and coordinates the operation of the metro, bus and trolley bus systems.
49. SoM Agencies - The legal and institutional framework in the SoM dealing with environmentalprotection, and with the planning and implementation of public transport policies, has undergonesignificant changes recently. Under the terms of a new State Law for Environmental Protection,approved by the legislature of the SoM in November 1991, the powers and responsibilities of theEcological Commission have been substantially expanded and more clearly defined. TheCommission, which was a dependency of the Public Works Ministry, has been transformed into aseparate State Secretariat (Ministry of Ecology (SE)), reporting directly to the Governor of the State -thus increasing its influence and coordinating power. The new SE has a 1992 operating budget ofUS$5 million, more than double the amount authorized for the Ecolog.cal Commission in 1991. TheSE, which has a staff of 66 (of which 30 have technical qualifications), has been authorized to expandits staff to 250 positions by the end of 1992. Of these, 45 will be administrators (including 25division chiefs), 146 technical staff (including 46 inspectors), and the rest support staff. The new SEclearly faces a formidable challenge in contracting and training 44 new inspectors to supervise theState's industrial and mobile source pollution prevention and control efforts, and over 70 additionaltechnicians to work on expanded programs of air, water and soil pollution prevention and control.
50. The new SE is in charge of supervising vehicle emission inspection and the "Hoy no circula"program. While the Ecological Commission contracted a private fiin to supervise stations inspectingprivate vehicles and delegated to COTREM (the SoM Transport Commission) responsibility for theinspection of public service vehicles, the new SE is planning to supervise the network of privateinspection stations with its own expanded inspection staff, beginning in 1993. Once fully staffed, thenew SE's organization chart calls for some 20 qualified technicians to work in the area of airpollution, in addition to 10-15 inspectors who are to supervise the operation of the l/M program, inclose co-operation with the DDF General Directorate of Ecology.
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51. As part of a recent reorganization of the State Secretariat for Urban Development and PublicWorks, all aspects of public transport policy and the planning of transport Investments are now theresponsibility of the General Directorate of Highway Administration and Transport (DGVT/SoM),which is in charge of bus, minibus and taxi licenses, and the granting of bus route concessions.Security and Transport, part of the State Police, is in charge of private vehicle registration and,together with the municipalities controls traffic. Drivers' licenses are Issued by the municipalities.
52. Mtr£opolitan Transport Institutions - Until recently, there was very little coordinationbetween the DDF and the SoM in the planning, coordination and supply of transport services. AMetropolitan Transport Council, COTAM, was formed in February 1991 by the Mayor of the DF,the Governor of the SoM and the Secretary of the Federal Ministry of Transport (SCT). The CouncilIs to provide a framework for coordinated policy development and implementation. Ten workinggroups have been formed to: (a) address the most serious short-term jurisdictional conflicts affectingprimarily passenger transport throughout the metropolitan area, and; (b) lay the basis for achieving, inthe longer run, greater uniformity in the formulation and application of the normative, operational,technical and fiunctional aspects of the public transport system. One of the working groups is chargedwith developing PRET4, , a Strategic Transport Plan for the MCMA. A critical aspect Is theformulation of a program of demand management to help achieve both transport and air managementobjectives.
53. Metropolitan Air Ouslity Institutions - Prior to January 1992, no permanent metropolitanagency existed, capable of taking an overall view of MCMA air quality, and of planning and guidingimplementation of a long-term program. Having regard to past difficulties in making metropolitan orregional commissions effective, the present administration concluded that coordination between theDDF, SoM, SEDUE (now SEDESOL) and other Federal agencies could best be promoted through anniformal institutional arrangement. Under this arrangement, the DDF took the lead in planning the
program, the creation of new bureaucratic structures was avoided, and private sector expertise wasused extensively. In response to a specific mandate from the President, the Mayor of the DF initiatedpreparation of an air pollution control program for the entire MCMA, and appointed a senior officialas General Coordinator to lead the task. Two inter-governmental groups were formed in 1989 to helpdevelop the program: a Steering Committee, consisting of senior officials of the DDF, SoM, SEDUE(now SEDESOL), appropriate Federal Ministries, PEMEX, IMP and CFE; and a TechnicalSecretariat, consisting of staff members of these same agencies, working on a part-time or temporarybasis. Preparation of the program was a collaborative effort of the Technical Secretariat and teams offoreign experts, directed by prominent Mexican consultants. These arrangements worked relativelywell for program preparation but, to ensuro, effective implementation and sustainability of theprogram, institutional arrangements needed to be strengthened and made permanent.
54. Taking these considerations into account, on January 6, 1992, the President issued a Decreecreating a new, permanent CMPCCA. Under a subsequent agreement between the CMPCCA and theSoM, the Governor of the SoM has become a permanent, voting member of the CMPCCA. Theobjectives of the CMPCCA are to define and coordinate the policies, programs and projects which thevarious public agencies are to carry out to control environmental pollution in the MCMA, and tomonitor their implementation. The CMPCCA has responsibilities for the prevention and control of allaspects of environmental degradation, although its initial focus is primarily on air pollution.
55. The CMPCCA comprises the SoM Governor and seven representatives of Federal Governmentagencies - the Secretaries of Finance and Public Credit, Energy, Transport, Social Development,Health, the Mayor of the DF and the Director General of PEMEX. When matters for which they areresponsible are to be discussed, representatives of other agencies may participate in the CMPCCA's
ANNEX-1Page 15 of 30
work: e.g. the Comptroller General; the Secretaries of Commerce and Industrial Development, and ofPublic Education; the Directors General of IMP, the National Water Commission and the NationalPower Commission; the heads of other Federal agencies; and SoM municipalities. The CMPCCA'sPresidency will rotate every two years: the Mayor of the DF Is presiding over the Commission'sactivities initially; followed by the Governor of the SoM; and the head of SEDESOL.
56. The CMPCCA has an Advisory Council, consisting of representatives of the scientificcommunity, industrial associations, transport operators, environmental Interest groups, the Presidentsof the Ecological and Environmental Commission and the Conmmission for Governmental Affairs ofthe Chamber of Deputies, and the Ecological Commission of the Representative Assembly of the DF;and other agencies.
57. The CMPCCA does not have its own permanent staff. The administrative and technicalsupport for the CMPCCA and its Technical Secretary are provided by the DDF, in line with thePresidential Decree. To meet CMPCCA's requirements, the DDF has been reorganizing andexpanding its environmenital management capability. Three entities now report to the DDF's GeneralCoordinator for Prevention and Control of Environmental Pollution: (a) the General Directorate ofEcology, which continues to be the DDF implementing agency for pollution-control measures; (b) theCoordinating Commission for Rural Development (COCODER), which coordinates rural development(including reforestation and soil conservation); and (c) a new General Directorate for EnvironmentalProjects (DGPA). The latter General Directorate constitutes the de facto Technical Support Team forthe CMPCCA and its Technical Secretary.
58. The DGPA has been assigned the budget resources needed to build up a technical staff of about25 in the course of 1992 (15 were in-place as of June 1992). Disciplines to be covered include:environmental, automotive and industrial engineering; biology and chemistry; meteorology; legalaffairs; economics and finance; sociology; and public relations. DDF budget resources also areavailable to finance short-term consultants to assist the DOPA technical staff with specific activities.The DGPA is to be strengthened under the proposed Transport Air Quality Management Project forthe Mexice City Metropolitan Area through financing long- and short-term consultants.
59. Human Resources - There is a serious shortage of well-trained, specialized air quality staff inboth the public and private sectors. At the end of 1990, less than 300 staff members worked in theMCMA on air pollution in the three key agencies - SEDUE (now SEDESOL), the GeneralDirectorate of Ecology of the DDF and the Ecological Commission of the SoM. Only approximately80 staff had college degrees, and a very small number had been trained in the environmental sciences.The number of private consultants familiar with the rapidly evolving technology of dealing with airpollution from mobile sources, is also still quite limited. The first courses in environmentalengineering leading to a bachelor degree were started at the UAM (Autonomous MetropolitanUniversity) seven years ago and only relatively recently has the National University of Mexico begunto offer Masters and PhD degrees in environmental science. In both undergraduate and graduatetraining, the emphasis has been on studying the contamination of water and soil resources.Throughout the 1980s, public sector salaries fell sharply both in real terms and in relation to privatesector remuneration levels. Even though the budgets of SEDUE (now SEDESOL) and the DDF andSoM agencies rcoponsible for pollution control were substantially increased in 1991, and the salariespaid to their staff have begun to improve, the agencies continue to experience considerable difficultiesin attracting and retaining experienced technical staff.
71 ANNEX IPage 16 of 30
III. THE GOVERNMENT'S AIR QUALITY STRATEGY FOR THE MCMA
60. Since 1988, air pollution control programs have been greatly expanded and given much greaterpolitical emphasis. An Emergency Air Pollution Control Program was put into effect in 1989 and, InSeptember 1990, the Mexican Authorities announced an expanded program, the "Integrated ProgramAgainst Air Pollution in the Mexico City Metropolitan Area" (a revised version of this program wasissued in September 1991).
A. Objectives
61. Government's stated objectives are to: (a) abate the high levels of ozone in the MCMA byreducing emissions of its precursors, hydrocarbons (HC) and NOx; (b) abate the high levels of totalsuspended particles, PMIO, acid aerosol and acid deposition by reducing SOx, NOx, and particulateemissions; (c) reduce ambient lead levels in the MCMA by reducing lead emissions from vehicles;and (d) reduce the high levels of CO contamination by reducing CO emissions from vehicles.
B. The Emergency Program
62. Measures instituted under the Emergency Program included: (a) adoption of tighter vehicleemissions standards, effective in model year 1991, with further tightening to be numerically equal toU.S. 1981 standards by 1993; (b) "Hoy no Circula"; (c) addition of 5% MTBE to gasoline to reduceHC and CO emissions, and a reduction in gasoline lead content; (d) implementation of a vehicleinspection and maintenance program; (e) temporarily switching oil-fired thermoelectric plants tonatural gas fuel; (f) replacement of some 3,500 Ruta-100 bus engines with engines meeting California1990 emissions standards, and rehabilitation of these buses to improve their comfort, appearance, andmechanical condition; and (g) expansion and reinforcement of the air quality monitoring network.
C. The Integrated Program
63. The "Integrated Program Against Air Pollution in the MCMA" comprises 41 specific measures,grouped into the following categories: (a) oil industry and fuels; (b) transport sector; (c) privateindustry and services; (d) thermoelectric plants; (e) reforestation and sanitary measures; and (f)research, education, and communication. Although many of the measures announced in the IntegratedProgram are still in the planning stages, some have already been implemented. The total direct costis estimated by Governmenw at US$4.7 billion.
D. Assessment of the Government's Program
64. Implementation of the Emergency Program went well. The program was coordinated andcarried out effectively, and had wide public support. Contrary to expectations, however, ozone levelsin the MCMA have nc. improved, but have continued to increpse. Lead concentrations have declinedmarkedly since 1988, and exceedances of the particulate standard have been somewhat reduced, butCO violations are increasing. It is unclear whether the continuing increase in ozone levels is due toless-than-anticipated effectiveness in the program, to unfavorable weather conditions, or other causes.The effectiveness of the program in reducing emissions is difficult to evaluate, due to lack of baselinestudies and effective monitoring. However, the Bank's preliminary evaluation of the "Hoy nocircula" program suggests that its initial benefits as an emergency measure may have been lost whenIt was made permanent, as people adapted to it by purchasing second (used) cars.
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65. The Integrated Program constitutes a significant step forward in air pollution control in theMCMA. The proposed measures cover most of the significant air pollution sources and, if carriedthrough, should result In a substantial reduction in overall pollutant emissions. The strong politicalwill and popular support demonstrated in the execution of the Emergency Program suggest that themeasures proposed for the Integrated Program are likely to have the political support required toovercome what are likely to be formidable obstacles. In its review of the Integral Program, theExternal Advisory Panel concurred with this evaluation, and stated that 'it Is not an overstatement tonote that Mexican Officials have moved forward more comprehensively, quickly and aggressively inthe past few years than the Panel has observed in virtually any other city in the world".
66. The Integrated Program could still b improved in several important respects, including:improved scientific base (emissions inventory and air-quality models) to support detailed air qualityplanning; more complete coverage of emissions sources; better definition of air quality targets;explicit consideration of cost-effectiveness and establishment of priorities; greater reliance oneconomic incentives; development of a policy framework to support the individual measures;Improved planning for implementation and enforcement; monitoring and evaluation of effectiveness;a4d,direct linkages with transport sector investment and policy programs. Further development of thetransport demand management strategy and assessment of the 'Hoy no circula" program are especiallyurgent. Many of these weaknesses have bean recognized by the Mexican Authorities and are beingaddressed. Technical and financial support for addressing these issues are to be provided through theproposed Transport Air Quality Management Project for the Mexico City Metropolitan Area.
IV. INSTITUTIONAL ARRANGEMENIS
A. Background
67. As noted in para. 54 above, on January 6, 1992 the President issued a Decree, creating theCMPCCA. The CMPCCA is a permanent institution with clearly defined objectives and functions;representatives of all the key institutions of the Federal Government, the DDF and SoM concernedwith pollution control are permanent members of the CMPCCA; it has a Technical Secretary,appointed by the president for a two-year term, whose functions are spelled out in the Decree, theauthority to create permanent working groups and an Advisory Council of leading scientists and NGOrepresentatives. The mayor of the DF has become the first chairman of the CMPCCA and hisrepresentative on the Technical Secretariat, who coordinated the preparation of the MCMA AirQuality Management Plan, has become the Commission's first Technical Secretary. The de factoleadership of the DDF in preparing and starting to implement the program has thus been madeexplicit.
B. Ensuring Effective Operation of new MCMA Environmental Commissionand Sustainabilty of the Pollution Control Program
68. As noted in para. 57, in line with a specific provision of the Presidential Decree, creating theCMPCCA, the administrative and technical support for the CMPCCA is being provided by the DDF.A new General Directorate for Environmental Projects (DGPA) has been created in the DDF with theneeded technical staff and budget resources to give effective support to the CMPCCA and itsTechnical Secretary. The DGPA is to be further strengthened under the proposed Transport AirQuality Management Project through Bank financing of long- and short-term consultants.
73 NNEXIPage 18 of 30
69. The Decree creating the CMPCCA calls on the Commission "to define mechanisms to securethe resources needed to form a "Fund" to finance the program, projects and actions approved by theCommission". In response, the members of the CMPCCA, under the leadership of SHCP, havecreated an Environmental Trust Fund, which has the potential of substantially facilitating the effectiveimplementation of the overall environmental program as well as the proposed Transport Air QualityManagement Project for the Mexico City Metropolitan Area and increasing the sustainability of thepollution control effort. Ititial funding, in an amount not yet determined, is to be provided by theofficial entities and dependencies (SHCP, DDF, SoM, SEDESOL, PEMEX, etc.) which are membersof the CMPCCA. The Environmental Trust Fund is intended to be a channel for multilateral andbilateral loans, commencing with proceeds of the proposed loan. Other sources of funding envisagedin the Decree are annual budget allocation by member agencies of the CMPCCA, grants by official orprivate external or domestic donors, income from the investment of the Funa's resources (net of theFund's operating costs and the administration fees to be paid to BANOBRAS) and other contributionsassigned to the Fund from time to time. This leaves open the possibility of channelling directly to theFund the proceeds of user charges, fees, vehicle taxes and/or fuel surcharges, levied in accordancewith the "polluter pays" principle. The Environmental Trust Fund's resources are to be madeavailable as credits or grants to support implementation of the programs, projects and activities aidt6dat prevention and control of pollution in the MCMA. BANOBRAS, as Trustee, is to administer theFund's resources in accordance with instructions of the Fund's Technical Committee, which iscomposed of two representat ves of SHCP, one of whom will be its President as well asrepresentatives of the DDF, SoM, SEDESOL and the Technical Secretary of CMPCCA. TheMinistry of Finance would appoint the Committee's Secretary. The Technical Committee's functionsare: (a) to approve the Environmental Trust Fund's operating rules, including the terms and interestrates of its loans to executing agencies; (b) instruct BANOBRAS how to invest the Fund's resourcespending their use to finance environmental programs and projects proposed by the CMPCCA; (c)approve the credit operations proposed by the CMPCCA; (d) ensure that the credits are used for theintended purposes and that the borrowers meet their obligations; and (e) review the accounts of theTrustee's administration of the Fund's resources.
70. The Environmental Trust Fund provides the CMPCCA with the sufficient leverage needed toinfluence the actions of the numerous agencies of the Federal Government, DDF and SoM, as well asprivate groups responsible for the detailed planning and implementation of the air quality managementprogram. Since the CMPCCA has no juridical personality, the Environmental Trust Fund would, onbehalf of the CMPCCA, contract with executing agencies. Another potential advantage of theEnvironmental Trust Fund is that it can be a means of ensuring that resources, obtained by applyingthe "polluter pays" principle, are channeled into the anti-pollution effort. This is important, sinceexperience in Mexico and elsewhere indicates that the resources for a sustained, long-term anti-pollution effort have to come largely from the polluters, otherwise the effort would be viewed asinequitable and would not be sustained.
C Setting and Monitoring Air Pollution Control Goals
71. In designing and starting to implement the air pollution control program in the MCMA, noprovision had been made, up to now, for a program of setting and monitoring specific, measurable airpollution control goals. In this respect, the following is envisaged:
(a) CMPCCA's Technical Support Team would have as one of its important functions toprovide, with the help of specialized consultants, technical assistance to the Authoritiesof the DDF and SoM in setting numerical goals for the air pollution control program.Initially, such an approach would focus on 'interim' goals for specific control strategies,
ANNEXI 74Page 19 of 30
until such time as goals for the entire program can be developed. The technical staffwould have to monitor the implementation of the specific control strategies (i.e. theimproved inspection and maintenance program) and evaluate, on an annual basis,whether the goals are being met. CMPCC t's Board of Directors would be keptinformed of the progress and results of this activity; and
(b) an independent audit is to be conducted on an annual basis to determine to what extentthe various DDF, SoM, Federal, Metropolitan and Municipal agencies and private sectororganizatien in the MCMA are meeting their respective air quality targets. Such anaudit, which is to be carried out by a group of independent technical experts under theterms of a multi-year contract, would be financed as part of the proposed Transport AirQuality Management Project for the Mexico City Metropolitan Area.
D. Strengthening Institutions Responsible forProgram Implementation
72. Neither the technical staff nor the operating budgets of the agencies charged with setting andenforcing air quality standards in the MCMiA have been adequate in past years to carry out thefunctions assigned to them. Further strengthening is required of SEDESOL, relevant DDF and SoMagencies, and of COTAM. SEDESO)L is to be substantially strengthened through a Bank-supportedEnvironmental Project which envisages the transformation of SEDESOL into a small, but effective"second-tier" institution, whose technical staff is to be reinforced over a four-year period. Someincrease and training in the technical staff of the DDF's Ecological Department is needed, bt theDDF may be able to do this itself. The Ecological Commission of the SoM, whose power andauthority has been greatly expanded by a new State Ecological Law and whose budget and staff arebeing sharply increased, is to be assisted under the proposed Transport Air Quality ManagementProject for the Mexico City Metropolitan Area. In order to improve continuity at the working level,COTAM has decided to establish a full-time, permanent Technical Secretariat. This Secretariat wouldbe supported under the proposed Transport Air Quality Marnagement Project for the Mexico CityMetropolitan Area.
E. Increased Education end Training
73. In view of the serious shortage of well trained staff, specialized in the environmental sciences,which affects both public institutions and the private sector, there is a pressing need to (a) increase thesupply of university-trained scientists; (b) provide continuing training to both existing and new staff ofpublic institutions and the private sector to keep them up-to-date on technological developments; and(c) expand vocational training of mechanics. In the area of university-level training, the mostsignificant initiatives are: (i) the planned expansion of the existing training and research program ofthe National University of Mexico with technical and financial assistance from the German TechnicalAssistant Agency (GTZ); (ii) a Japanese Government proposal for the creation of an euvironmentaltraining and research center; and (iii) the creation of an International Center of EnvironmentalTraining in Veracruz. Numerous initiatives to provide mid-career training are under consideration atthe present time, involving, in many cases, technical and financial support from bilateral assistanceagencies. The Bank supported Environmental Project, designed to strengthen SEDUE (nowSEDESOL), envisages in-service training of the staff of SEDESOL's regional centers and statedelegations as well as formal and on-the-job training of long-term consultants who are to beincreasingly responsible for the agency's environmental monitoring and auditing functions. Theseactivities will strengthen and complement SEDESOL's nation-wide training program, which has been
ANNEX 175 Page 20 of 30
in operation since 1987. Finally, Volkswagen and General Motors have started training programs fortheir local mechanics, so that they will be able to maintain and repair vehicles equipped with directfuel injection and sophisticated pollution control components. GTZ is helping to develop a similarprogram fo[ the staff ot the I/M program.
V. EVALUATION OF TRANSPORT AIR POLLUTION CONTROL MEASURES
A. Control Measures
74. Transport air pollution control measures can be divided into two broad categories: those whichprimarily seek to reduce pollutant emissions per vehicle kilometer travelled; and those which seek toreduce the number of vehicle-kilometers travelled by modifying travel behavior. The first categoryincludes primarily technical measures, such as installation of emission controls on vehicles, improvedvehicle inspection and maintenance, changes in fuel properties to reduce emissions, and improvedtraffic management to reduce "stop-and-go" driving. The Eecond category includes measures toinfluence the relative use of public and private transport (t' modal split) by changing their relativeattractiveness, to increase vehicle occupancy, to limit the use of private vehicles, and/or to limit totaldemand for motorized transport. Measures in the first category usually involve primarily technicalchanges, for which the effects are fairly predictable, and the costs are mostly tangible and readilyquantifiable. Those in the second category, by contrast, involve changes in human behavior. Theeffects of individual measures are often difficult to predict, and the costs include such intangibles asconvenience, comfort, reliability, and travel time. Although these costs and benefits con, in principle,be evaluated, their evaluation often involves substantially greater effort and uncertainty than formeasures in the first cz.egory.
75. In this study, the major quantitative focus was on technical measures to reduce vehicleemissions per kilometer. These measures were emphasized for two reasons: they were considered tohave the greatest potential for short- to medium-term emission reductions; and the data required tocarry out a quantitative analysis were reasonably available. An optimal emissions control program,however, should incorporate a balanced mix of technical and demand-managemen. measures, selectingmeasures from each group to give the needed emissions reduction at minimum social cost. Data andresources to support a quantitative analysis of the full range of potential demand-managementmeasures were not available for this study. It was possible to carry out a quantitative evaluation onlyfor a single demand-management measure - gasoline pricing - for which the cost-effectiveness analysisis relatively straightforward.
76. Technical measures considered in this analysis fall into five groups: vehicle inspection andmaintenance, emission standards for new vehicles, vehicle fleet modernization, fuel modifications, andchanges to the fuel supply infrastructure.
77. Vehicle Inspection and Maintenance - The Mexican Authorities are in the process ofimplementing a centralized I/M program for high-use vehicles, and taking steps to improve thepresent decentralized V/M program for passenger cars through the use of computerized emissionsanalyzers and improved enforcement. Cost-effectiveness estimates were developed for each of theseprograms. The incremental cost-effectiveness of a centralized passenger car I/M program (comparedto the decentralized program) was also evaluated.
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78. Vehicle Emission Standards - Cost-effectiveness estimates were developed for both theMexican 1991-92 emission standards for new passenger cars, and the more stringent standards thatwill apply from 1993 onward. The incremental cost-effectiveness of adopting U.S. Tier 1 standardsin 1994 was also evaluated. Cost-effectiveness evaluations were also carried out for emissionstandards for minibuses, for gasoline trucks, and for heavy-duty diesel engines in urban buses. Theemission standards considered for new diesel buses are the U.S. 1991 emission standards for heavy-duty diesel vehicles, which the Mexican Authorities intend to adopt as an interim measure by the endof 1992. The same standards would also apply to heavy-duty diesel trucks, but a separate cost-effectiveness analysis was not performed due to lack of data on truck operations.
79. Vehicle Fleet Modernization - During the Emergency Program, the Mexican Authoritiesretrofitted some 3,500 buses with new diesel engines meeting California 1990 emission stardards. Aprogram is also under way to replace all taxis older than 6 years old with new vehicles, and a similarprogram is being developed for minibuses over 8 years old and trucks over 15 years old. Minibusesand trucks younger than these ages, but which are not equipped with catalytic converters, will have toundergo retrofits or be retired from service. Retrofit options for gasoline vehicles include LPG orCNG fuel systems, or re-engining with an emission-controlled gasoline engine. In all cases, a three-way catalytic converter would be required. Retrofit options for diesels include re-engining with anew engine meeting emission standards, or conversion to natural gas fuel. Estimates of cost-effectiveness were developed for the following cases: eeplacement of taxis with new vehicles meeting1993 standards, replacement of gasoline trucks with new catalyst-equipped vehicles, retrofit ofgasoline trucks with CNG and LPG systems and catalytic converters, retrofit of gasoline minibuseswith CNG systems and catalytic converters, and re-engining the light buses used in the State ofMexico. Cost-effectiveness estimates were also developed for the re-engining of Ruta-100 vehiclesthat has already been carried out.
80. Fuel Modifications - Potential gasoline modifications include the addition of oxygenates,reduction in volatility, and further reductions in lead. PEMEX is presently adding 5% MTBE to bothNova and Magna Sin in order to reduce HC and CO emissions and make up some of the octane lostby reducing lead. A study is also underway to evaluate other gasoline reformulation measures, andPEMEX has agreed to implement the measures recommended by this study. For purposes ofillustration, the present analysis addresses three possible measures for reformulating Nova and twomeasures for reformulating Magna Sin, in addition to the present policy of adding 5% MTBE.Measures evaluated were: increasing the MTBE content of Nova and Magna Sin to 11 %, reducing theReid vapor pressure for both fuels to 7.5 PSIA to reduce evaporative emissions, and - for Nova only- eliminating the lead content (thus producing "Nova Sin").
81. Cost-effectiveness estimates were also developed for several modifications to diesel fuel. Theseincluded the present practice of supplying "Diesel Especial' with a reduced sulfur content in theMCMA, and the future supply of low-sulfur (0.1% S) diesel that will be made possible by thedesulfurization projects now under construction with assistance from the Overseas EconomicCooperation Fund of Japan (OECF). The cost-effectiveness of further sulfur reductions to U.S.specifications (0.05% S) was Also evaluated.
82. Fuel SuRl - Cost-effectiveness estimates were developed for two measures affecting thevehicle fuel supply infrastructure. These were gasoline vapor recovery and shutdown of theAzcapotzalco refinery in March 1991.
77 ANNEXIPage 22 of 30
B. Evaluation Methodology
83. Ideally, the ranking and evaluation of alternative air quality measures would be carried out bycomparing the costs and the benefits of each, and selecting those offering the greatest net socialbenefit. Unfortunately, quantitative data linking pollutant emission reductions with human health andeconomic impacts - needed to carry out cost-benefit analysis - are not yet available. For this reason,emission control measures were analyzed instead in terms of the-r cost-effectiveness (cost per ton oftoxicity-weighted emissions eliminated). Although necessary, the decision to focus on cost-effectiveness instead of cost-benefit evaluation introduces a number of complications, since the mostcost-effective emissions control measure is not necessarily the most cost-beneficial. Measures whichgenerate benefits other than emissions reductions (e.g. time savings) pose a special problem for cost-effectiveness analysis, as it is necessary to consider the relative values of air quality and otherbenefits. Furthermore, cost-effectiveness of Ss gives little guidance as to the degree of emissionsreduction that is socially justified. There is thus a need to improve the data base and methodologiesto lay the ground for full-fledged cost-benefit analysis in the future.
84. Even the cost-effectiveness estimates that are presented are subject to considerable uncertainty.Among the major sources of this uncertainty are the absence of actual emissions measurements on '
vehicles in the MCMA (the emissions estimates are based on similar-technology vehicles measured inthe U.S.) and the uncertainty in the pollutant weighing sch-eme. For this reason, the results presentedshould be considered as preliminary, and indicative of priorin. c and approaches for programdevelopment, rather than as the final design for comprehensivt 'ransport air quality program. Inparticular, excessive reliance should not be placed on small differences (less than about a factor oftwo) in the calculated cost-effectiveness of different measures. Given the uncertainties, differences ofthis magnitude may not be significant.
85. The cost-effectiveness analysis was carried out on an incremental basis, taking care to avoiddouble counting of emission reductions achieved by overlapping measures. All costs and emissionsbenefits were expressed in annual terms (dollars per year, tons per year), and the reference year 1995was chosen for the comparison. This is the earliest time that all of the measures considered couldpossibly take effect. For measures requiring capital investments, the capital cost was 'annualized'using a social discount rate of 12%. Emissions from transport-related sources in 1995 (includinggasoline vapor, refinery, and road dust, as well as vehicle emissions), had no pollution controlmeasures been undertaken since 1989, are forecasted at 2,055,000 toxicity-weighted tons per year,compared to 1,435,000 toxicity-weighted tons in 1989, or an increase of about 43%.
C. Results of the Analysis
86. Table 4 summarizes the cost-effectiveness results for all measures for which an evaluation waspossible. These include many measures already included in the Government's program (indicated bya bullet in the first column) as wel! as several measures identified by the Government and/or the Bankas possible future options. Measures are listed in order of their estimated cost-effectiveness, with themost cost-effective (owest cost per tor.) measures at the top, and tLe least cost-effective (highest costper ton) at the bottom. For each measure, the table shows the estimated total emission reduction (intoxicity-weighted tons oi pollution and as a percentage of the estimated 199S inventory), total socialcost, cost-effectiveness, and the presence or absence of significant non-emissions related benefits suchas improvements in congestion, travel time, or safety. Also shown in Table 4 are the level andeffects of the gasoline tax having equivalent cost-effectiveness to each measure, as more fullyexplained In para. 90. Figure 3 shows the same information in graphical form. The two curves
luLl Total Pet Cost Sgnif. Equiv. Ems. Red. Gas tx Cuon. Fmission Cumulative Costilk Mes Cost- En. Red 1995 OUS$ nemis. Ga Tax frm tax cost Redction 0003) (IOOOs of US)GoWt. Idf1c. (tals) livemn (IO00) bonft? (USS (tols) (1000UIS) 'w/ota w tax w/o tax w tax X
* (la trck LPG rfit (379) = ,490 4 (34,316 N 0.000 0 0 90,490 90,490 (34,316) (34,316)* Minibus CNG retrofit (248) 57,468 2.8% (14,237) N 0.000 0 0 147,958 147,958 (48,553) (48,553)* Gas rck CNG retrofit (225) 82,621 4.0% (18,590) N 0.000 0 0 230,579 230,579 (67,143) (67,143)* Gasolinevapor recovery (0 44,840 2.2% (3,566) N '0 0 0 275,419 275,419 (70,709) (70,709)
D Wad Ih. bus, US '91 atds. 38 0 0.0% 0 N _ ._35 3,941 75 275,419 279,360 (70,709) (70,634)_ SoM bus re-ngi 140 23,937 1.2% 3,340 N 0.018 4,605 1,025 299,356 313,961 (67,369) (66,344)* RIO) bus, US '91 atds. 174 0 0.0% 0 N 0.022 18,105 1,575 299,356 317,461 (67,369) (65,794)
N Mibus '92 stndards 181 91,931 4.5% 16,644 N 0.023 18,877 1,712 391,287 410,164 (50,725) (49,013)G Ceutral VM high-pic vehicles 207 153,939 7.5% 31,883 Y 0.026 21,495 2,220 545,226 566,721 (18,842) (16,622)
- Gu. tmck '93 standards 264 86,447 4.2% 22,810 N 0.034 28,385 3,745 631,673 660,058 3,968 7,713Ttxisrier I (mcr.) 322 9,807 0.5% 3,160 N 0.041 34,919 5,621 641,480 676,399 7,128 12,749 |
* RIO0 re-engine (CA '90 stds.) 482 9,719 O.W 4,685 N 0.059 51,853 12,487 651,199 703,052 11,813 24,30040 * Taxi replacemen (93 stds) 510 62,397 3.0% 31,848 Y 0.062 54,767 13,960 713,596 768,363 43,661 57,621
P_tss. car '93 stds. 669 111,917 5.4% 74,895 N 0.080 71,026 23,753 825,513 896,539 118,556 142,309 |Cenasl IM pass. ca (incr.) 672 57,648 2.8% 38,712 N 0.080 71,333 23,963 883,161 954,494 157,268 181,231 r , seDi-sel Especial 699 10,006 0.5% 6,992 N 0.083 74,094 25,b99 893,167 967,261 164,260 190,159 | -oLower Nova RVP to 7.5 836 11,024 0.5% 9,221 N 0.098 87,899 36,734 904,191 992,090 173,481 210,215 &Nova Sin (old pa.. cs oy) 923 49,952 2.4% 46,104 N 0.108 96,642 44,591 954,143 1,050,785 219,585 264,176
- Decent. VM pass. cars 1,025 64,132 3.1% 65,716 N 0.119 106,857 54,747 1,018,275 1,125,132 285,301 340,048* Replace gasoline ucks 1,114 77,533 3.8% 86,376 Y 0.129 115,815 64,520 1,095,808 1,211,623 371,677 436,197 I* 5% MTBE in Nova (finr.) 1,201 20,469 1.0% 24,588 N 0.138 124,497 74,763 1,116,277 1,240,774 396,265 471,0281
Shut down refineay I,286 52,108 2.5% 67,000 N 0.147 I,2,933 85,446 1,168,385 1,301,318 463,265 548,711Lower Magna Sin RVP to 7.5 1,313 12,001 0.6% 15,759 N 0.150 135,694 89,098 1,180,386 1,316,080 479,024 58, 122 a.Road paving (1000 km.) 1,335 7,520 0.4 iO,040 Y 0.153 137,841 91,992 1,187,906 1,325,747 489,064 581,056
* Pas car '91 aIds. 1,367 44,395 2.2% 60,687 N 0.156 141,062 96,419 1,232,301 1,373,363 549,751 646,170* 0.1% sufifr diesl (ncr.) 1,371 6,412 0.3% 8,790 N 0.156 141,431 96,932 1,238,713 1,380,144 558,541 655,473* Pass. car rter I oAM. Crcr.) 1,629 14,204 0.7% 23,143 N 0.184 167,138 136,116 1,252,917 1,420,055 581,684 717,800
U.S. spec diesel fiu 2,097 5,874 0.3% 12,319 N 0.235 213,676 224,009 1,258,791 1,472,467 594,003 818,01211% MTBE in Nova (inCr.) 2,477 12,409 0.6% 30,736 N 0.276 251,409 311,312 1,271,200 1,522,609 624,739 936,0515% MTBE in Magna Sin 13,486 3,116 0.2% 42,023 N 0.276 251,409 311,312 1,274,316 1,525,725 666,762 978,07411% %MTBE in Magna S;i Cocr.) 14,726 3,567 0.2% 52,529 N 0.276 251,409 311,312 1,277,883 1,529,292 719,291 1,030,603
79 A4XPage 24 of 30
shown in Figure 3 display the level of emissions reduction achievable as a function of the cost perton.
87. Potential of Technical Measures - The results shown in Table 4 and in Figure 3 suggest thatvery significant reductions in transport related emissions are technically possible at moderate cost perton. Two of the most significant measures already adopted by the Mexican Authorities - 1991passenger car standards (US$1,371 per ton) and the refinery shutdown (JS$1,285 per ton) - havecost-effectiveness values near the top of this range, indicating the willingness of Mexican society topay at least this much for emissions control. Any less costly measure, therefore, would also bejustified based on this analysis, while measures having significantly greater costs per ton should bescrutinized closely. For example, these results suggest that serious consideration should be given tolowering the RVP of Nova gasoline and eliminating the lead. On the other hand, blending MTBE inMagna Sin, at US$13,500 per ton, is difficult to justify.
88. If those measures having cost-effectiveness values greater than US$1,700 per ton are excluded,the potential emissions reduction due to the technical measures listed in Table 4 would be of the orderof 1.25 million toxicity-weighted tons per year in 1995, at a cost of around US$580 million per year.This would amount to a 61% reduction from the level that would have been experienced without anyemission controls. Among the most significant contributors to cost-effective emission reductions are:vehicle inspection and maintenance (22% of the total), vehicle fleet modernization (33%), and new-vehicle emission standards (27%). In contrast, the potential for cost-effective improvement throughfuel modifications is fairly limited at 9%. However, such modifications have the advantage that theycan take effect auicldy and are easy to administer, which makes them worth pursuing. In addition,the supply of unleaded gasoline for catalyst-equipped vehicles, altkough not counted as a separatemeasure, is an essential prerequisite for the effectiveness of vehicle emission standards.
89. From a cost-effectivene. 3 standpoint, the most attractive measures are the CNG and LPGconversions and gasoline vapor recovery, all of which show negative costs (i.e. savings) as well assubstantial emission reductions. For the conversions, this is due to the lower cost of the CNG andLPG fuels, which more than offsets the capital cost of the conversion. For vapor recovery, thenegative cost is due to the recovery of saleable gasoline which would otherwise have evaporated.Other measures showing very low cost per ton of emissions removed include emission standards, re-engining, and the I/M program for high-use vehicles. Measures aimed at passenger cars have highercosts per ton, due to the low utilization of these vehicles, while fuel modifications are also relativelyexpensive.
90. Need for Demand Management - In an efficient emissions control program, technicalemission control measures should be complemented by measures to reduce travel demand and to shiftit toward less pollution-intensive modes, to the extent that these are cost-effective. Gasoline taxes(and other similar economic instruments) should be set at a level such that their marginal cost-effectiveness is equal to that of the most expensive alternative measure included in the program -thereby equalizing the cost per ton at the margin. Figure 3 shows the estimated effect of adding agasoline tax (having the same marginal cost per ton) to the set of emissions control measures underconsideration. At any given level of cost-effectiveness, inclusion of a gasoline tax at the appropriatelevel results in a greater emission reduction. Conversely, a given level of emissions reduction can beachieved at lower cost by including an appropriate gasoline tax in the mix of measures.
91. Effective demand management measures will also se-ve as an insurance policy to reduce theimpacts of any shortfalls in the effectiveness of the technical measures. Potential causes of suckshortfalls include:
ANNEX IPage 25 of 30 80
%ure 3Marginal Cost Curves for Transport Emission Control Measures in the
MCMA in 1995, With and Without Gasoline Taxes
'10 gamei. tax~~~~.
___ Pm. caer .I td. _ -
1.500. .........
Stoldown r.bwy1,liOO .........-----------.- ............... 1t d< .................. .. . .. .. ...
50 <.............................. ..... W W N ................... bv............50 . -S .
0 ............ ......................................................................... . . .
(5Q(~) I I~u IcI~,~, ItUfdOE500.000 1,000,000 D1,500000 2,000,000
Emission Reducdon (tons)
(a) possible delays In the implementation of measures due to the shortage of suitable staff,the time necessary to bid and award contracts, or to a lack of financial resources;
(b) technical problems which could arise with the operation of some equipment in theMCMA environment;
(c) technical, safety and supply problems associated with the large scale conversion ofpublic service vehicles and trucks to LPG/CNG;
(d) peoples' ingenuity in responding to new regulations (e.g. the way in which many peoplehave circumvented 'Hoy no Circula" by buying second cars);
(e) possible operational risks with the I/M system (e.g. tampering; corruption), and so on.
To the extent that such shortfalls occur, measures that limit travel demand will be of correspondinglygreater importance. Measures to discourage the use of private cars in favor of public transport arelikely to be especially beneficial, as the oversight and control of emission from public transport
ANNEX 181 Page 26 of 30
vehicles is likely to be much more effective than that for private cars. Such measures will also haveother important social benefits, including reductions in noise, congestion, and traffic accidents.
92. Imrlementation Prlor!tles - Priority for implementation among the cost-effective measuresshown in Table 4 should go to those measures which can be implemented most quickly, whichprovide large emission reductions, which demand the least investment of critically scarce resources(administrative talent and trained personnel), which also have non-air quality benefits (e.g. gasolinetaxes, public transit), or which form a necessary precondition for the success of other measures (suchas the l/M program).
VI. TOWARDS AN INTEGRATED TRANSPORT AND AIR QUALITY STRATEGY
A. The Challenge
93. The gravity of the air quality situation in the MCMA requires that prompt and drastic actionsbe taken. Because of its significance as the dominant contributor to air pollution, the transport sectordeserves major attention. In addition, the transport sector in the MCMA by itself has major probleiaiswhich also must be addressed. Until now air quality and transport issues have largely been dealt within isolation and an integrated strategy for both transport and air pollution control is needed - onewhich would address both air quality and transport objectives, while reconciling the potential conflictsbetween them (e.g. the effect of major road construction on traffic generation and emissions). At thesame time, the scientific base required to support a comprehensive air quality management program isnot yet fully developed, the institutions to formulate and oversee it are still in their formative stages,and trained and experienced staff necessary to execute such a program are in short supply.lherefore, the approach must be to proceed on three parallel tracks: (a) putting into effect thosemeasures which can be undertaken in the short-term, while (b) preparing and implementing a coherenttravel demand strategy, and (c) simultaneously carrying out research to strengthen the sclentific base,strengthening appropriate institutions, and training air quality professionals and technicians. With thedevelopment of the Integrated Air Quality Program, the creation of COTAM, and the C;:CCA, theMexican Authorities have laid the foundation for an integrated transport and air quality strategy, butmuch work remains to be done.
B. Objectives and Approach
94. The Mexican Government has already adopted a strategy to combat air pollution (the IntegratedAir Quality Program) and has adopted a strategy for transport in the MCMA (the Pian Integral), bothof which are being implemented. The proposed Transport and Air Quality Strategy would refine,extend, and unify these sub-sector strategies, addressing both transport and air qualit- objectives,while reconciling the potential conflicts between them. The strategy should seek to minimizepollutant emissions from the transport sector, while still providing for the rapid, efficient, andeconomical transport of passengers and goods. To achieve this objective, it will be necessary toaccomplish the following:
(a) limit the increase in vehicle emissions due to growth by establishing strict emissionstandards for new vehicles;
(b) "roll back' the present high levels of emissions from the existing .ahicle fleet;
AWNNEX1 82Page 27 of 30
(c) make better use of existing roadspace by increasing vehicle occupancies and 'smoothing'traffic flow;
(d) shift transport demand from more-polluting to less-polluting modes, such as from privatecars to public transport; and
(e) limit the growth of overall demand for motorized travel, especially by private cars.
95. As was shown in Section V, large reductions in pollutant emissions per vehicle-kilometertravelled are possible through purely technical means. Continuing rapid growth in the use of privatecars and other vehicles, if it were allowed to continue, would eventually offset these reductions,however. Such growth would also lead to increased congestion, delaying traffic and furtherincreasing emissions from all types of vehicles. Even if all feasible technical measures areimplemented, it will be necessary to limit the present rapid growth in private car use as well. Giveitthe difficulty and political sensitivity of changing travel behavior, it is important that efforts to do sobegin as soon as possible. With the recent large increase in gasoline prices, the Government hasalpeady taken an important step in this direction. Successfully limiting the growth in private car usewill require both further actions to raise the cost of private car use and complementary actions toimprove the speed, comfort, and convenience of public transport. In the medium- and long-term,actions to address overall urban growth and land-use patterns will also be required.
96. In seeking to change ravel behavior, market-based incentives are likely to be more effectiveand less disruptive than command and control measures. The two principles that "the polluter pays'and "vehicle users should pay the costs of the incremental congestion they cause" are compatible andattractive - both for reasons of equity, and as means of reducing congestion and emissions in aflexible and economically efficient manner. Systems of market-based incentives should be developedwhich fully internalize the external costs of air pollution, congestion, and other problems created orexacerbated by vehicle use.
97. Any transport air pollution control strategy must take into account the weakness of theinstitutions presently charged with transport planning and air quality management, .s well as thecritical shortage of trained staff. In the short-term, this means that the emission control measuresselected should be designed to minimize demands on the Government's scarce administrativeresources, and plans for their implementation should incorporate training of staff at all levels.
C. Components of the Strategy
98. When fully developed, the Transport and Air Quality Strategy should comprise a balancedpackage of policies and investment measures addressing vehicles, fuels, transportation policy andplanning, the scientific base, and institutional strengthening. Based on the analysis carried out in theprevious sections, it is possible to identify many of the component policies and investments thatshould be included in the Transport and Air Quality Strategy. In other cases - especially fortransportation planning - an adequate basis does not yet exist for selecting specific policies orinvestments, and it has only been possible to identify the additional steps required. Combining bothconcrete measures and additional studies, etc., a total of 29 strategy components have been identified,and are listed in Table S.
83 Page 28 of 30
Table SComponents of an Integrated Transport and Air Quality Strategy
VebicFe-re'ated Measure
1. Establishlstrengthen new vehicle emissions standards and enforcement procedures- heavy-duty dieseattive fuel engine omision standards in prOgtam/pr,ciect,- minibus and medium-duty vehicle emisions standards inluding I POICNO) in program/proect- emissions durability, usefu life, airveilance and recail standard, in program/ptoject- evaporative emisions standards and test procedure ilk programprojeot- post '93 tadards for fight-duty vehicles under conoideration- posibl more sdrnget emissions sandards for vehicles in ecologioaUy critical zones future consideration- off-road heavy vehicle sadards future consideration
2. Ensure compliance with ic-use emissions standards tbrough vehide inspection/maintenance (I/M)- centlized l/M for high-ue vehichis in progrm/prjecot- tightiy-con4trlled decentralized l/M for private can in program/project- conVuteried vehicle regiastion system for whole MCMA and link with VM system In program/project- VIM center to monitor itupection compliance and failure raes In program/project- periodic rwviw of JIM program performnce, test procedures, and dandards in program/project- annual vehicle safety inpectiont introduced in conjunctlion with emisions testirg in programt I- option for link to demand management (e.g. emissions taxes) future conideration
3. Modenize the high-use vehicle fleet- on-going program to replace all taxis over 6 yea old in program/project- repaet old combiminibusea/buses/ttucs with emainion-controDid vehicles in program/project
4. Retrofit existing high-use vehides to reduce emissionspilot demonstration of alternative fuel conversions in program/project
- retrofit LP and natural gSa fuel systems with emission controls in pogramproject- re-engine trucksbusers/mnibuses in program/project- hbiOitte public tsport vehicles in program
S. Reduce emissions from the existing fleet- encourage tcrappage of old vehicles through modified vehicle ownership taxes in program- rerofluing with la-burn devices futue considerion
6. Expand fleet of "dean" fuel vehides as technology allows- dedicated LPG and natural gas vehiles in progtt- electric and/or hybrid electric vehicles in program
Fuel-related Measures
7. Supply Magna Sin to meet new vehide requirements in program
8. Discourage misfueing and reverse misfueling- reltive gasoline prices in program- test for lead in tilpipe as part of VM inspection in program/prqect- public information In prongam
9. Refonnulate Nova and Magna Sip' to reduce emissions- reduce Reid vapor pressure under tudye- other reformulation stept undetr tdy- review gasoline specification and standards dy in project
10. E:nminate lead from Nova (i.e. introduce "Nova Sin") under study
11. Instal gasoline vapor recovery equipment in ptgriun/ptqect
12. Reduce diesel fuel sulfur content- 0.1% Isufur in prOgrtUl- review diesl fuel standards, cotider lower Wlits if needed for future diesel engines study in program/proect
13. Inese supply of alternative fuels (LPG, natul gas) in progr
ANNEX I 84Page 29 of 30
Table S (contiued)Components of an Integrated Transport and Air Quality Strategy
TrasRgrtatgn rAlia, P1a4g, and Mwagnemen
Develop an MCMA Trnsport Policy and Plan (PRETAM) to meet both ltsuport and air quality objectives, including:
14. Travel Demand Managenent-assess 'Hoy no Cireulah tudy in project- introduce surcharges on gasoline, diesel and LPO/CNG prices to reflect pollution and coration costs study in project- adjust road user oharges (e.g. relate vehicle taxation to emission levels) study in project- atrengton parking polieies nd enforcement study In project- link with pubUlc trnport improvements (see below) tudy in project- extend elecdive bans on road trnfflc (e.g. pedestranization) study in project- linit private road trfflic through urban tolls, cordon pricing or are/orridor lcensii g (eg. use of environmentaly- study in projectapproved vehicles only) or other appropriate measures
- encourage changes to trvel times and fiequencies (eg. lunchtime; *contlmao workingy; shool times) study in projeet
15. Public Transportt %fine roles of segregated transit anodes (metro/lg! railwbuways) study in project- defne policies towarde use of bussrolleybuses/minibuea/combs study in project-promote ue of low-emision power sources and equipmernt (eg. LPG/CNO) in progrm/projectsuppon liberaliztdonlMCMA system irnegraion (e.g acrsa DF/SoM boundary) study in pr*ot
- introduce premium ervices in program/projectrationalize fare and subsidies within the MCMA atudy in project
- sengthen safety standards in program/project- develop inveatment plan baed on cost-benefit criteria (or cot- effectiveea for air quality-relted measr) study in project- link with travel dewmnd management policy study in project
16. Roads and Road Traffic- Intoduce on-dreet priortides for road-based public tapot future consideradon- mnae trmfic control sydsem to 'smooth' trmffic flow future consideration- execute program to pave currently up ,ed roads used by existing ot potentil public tannt aervice future consideration- develop Investment and maaemenat plan to achieve wainable bnefit (.e. tking into account genered traffic) future consideration
17. Freight Management-support rationalization of truck aze, posibly in conjunction with urba freight ceter study in project- promote use of low-emision power aoutces and equipment (eg. LPC/CNO) in program/prJect- inLoduce cning scheme for *environmentaliy-friedly trucsb wihin sensitive eas study in project- refine sytem of truck route/bans study in project- mnae houn of operation (e.g. night-time deliveries) in progm
18. Enviromental lmpact Assessments- require evaluadon of the air quality impacts of all major schemes in progam
SctficBa
Prepare an Integrated Plan to strengthen the scientific base for ir quality management in the MCMA, induding:
19. Extend air quality monitoring and sampling- new tdaon in upwind areas of the aished in prognra/proect- partioulate composition in program/project
VOC compoiton in progrm/project
20. Develop procedues to predict critical air pollution episodes and rled contingency plans in progam/project
85 PeO 30 ot 30
Table S (continued)Components of an Integrated Transport and Air Quality S tat
21. Expand laboratory capacity for mobile-source emissions and fuelsdevelop SEDESOL/INB lbtoy for emissions conyplaoce, emison factor developmnt, d rasarb &Wdy In pr*t
- expWd IMP laboty for cetdIication azd fAel-relted studies in progra/proect
22. Extend and Improve e ions inventory. vehicle om merements In-u in prlstpojed- emisons _mamaa fr ae ources in prormpoct- inyroved taffic and ar ource data In progrmpojt
continuus motorIg of maJor pollution sources in progtminopoita enire ainhd in progamtprojut
23. Develop and validate photochenical grid models in pr tamlproject
24. Develop and refne economic evaluation methodology for air quality m easurefine co-Mfeotivenes mehodology In pro/proJect
- refie emissons wveighing (VOC, NOx, partculate types) In progra/project- refine cost esimates in proram/ptoject- assess cost-effectiven of Integated Program and other proposed mautes in progsam/00ject- conduct epidemiologica study of helth impacts in prooral/proect- develop cost-benefit evaluation methodology in pogram/project- carry out expour modeling in progtam/project- evaluate dose/reowe relationships in progra/proje! value air polbJlu Impacts (especially health) in prormprct- perform coat-benefit alysi of ntgrated Program and other proposed mur in prgranvproject
i li~~~~~~~~~~titutional Shy hireg
25. Apply the Opoluter pays" principle in the Mexico City MetropoUtan Area and make fur conIdertonproceeds obtined from the application of the "polluter pays" principle avaiabe to theEnvironmental Trust Fund to achieve long-term sustainability of the Air QualityManagunent Pogam
26. Reinforce exist agencies, particulady:- CMPCCA: asnn peruman suff nd appoint long- nd sort-tem consultants in psrogrU/prot- SEDESOLIJNE: tchnica asdssac related to vehicle emisionS regulation in programpoject- SoM Agencies: technic assisance related to administion and enforcement of in progrmvprojetenviroamea and public tranport regulations; environmental plaing
- COTAM: technic itnco related to trvel demad magSement, public tUanspot, fight manaet in prgram ojecand transport sector invstment planning, incuding environmental impact a@as nt.
27. Carry out independent Anmnl Air Quality Audits in pogra/project
28. Define and develop professional and technical training programs- establish a dedicated Center for Air POlution Resarch fuure consideration-etend univeiy_-ased graduate ad post-g ateb taining in progam- expend mid-carer taining opporinitie in program- wpport vocational trkaing for inspeCtors and mechanics b program/project
29. Develop and carry out public awaress eampaigns to support the Stratk-schoola in program. press/medi in program
Chambers of Commerce in prnm
1I Prgram: The Govanmwet' Intgted Progm Agaist Air Pollution in Mexico City2/ Project: Proposed Tnpoet Air Qualiy M _aagmen Ptoject fot the Mexico Cty Metopoln AreaI/ As pat of the environmena inpct study for the PEMIC goline projecb
AN 2Page 1 of 6
86
MEXICO
TURMP AIR OUALI MANAGENM PROC FOR TH
MEXIO CITY METROPOLflTAN AREA
Review of Relevant World Bank EMxuerence in Pollution Control
1. The following operations and documents have been reviewed:
(a) the Project Completion RT eport on the first "Pollution Control Project" in Mexicofor which Bank Loan 2154-ME was approved in July 1982;
(b) the Project Completion Report on the "Decentralization Program for the MexicoCity Re_in", a preinvestment project, for which Bank loan 2 J4-ME wasapproved iD August 1982;
(c) experience to date of the Bank-financed transport components ofthe MCMAEmergency Air Pollution Control Promram, which was made possible by amendingin December 1989 the "First Urban Transport Project", for which Bank loan 2824-ME was approved in May 1987; and
(d) the Project Completion and Performance Audit Reports on the 'Sao PauloIndustrial Pollution Control Project" in Brazil, for which Bank Loan 1822-BR wasapproved in March 1980.
2. First Pollution ContrQI Project in Mexico. The First Pollution Control Project inMexico, for which a US$60 million loan was approved by the Bank in July 1982, had as its majorobjectives: (a) to help develop more effective pollution control strategies and enforcement procedures;(b) to encourage industrial investment aimed at reducing air and water pollution and initiate thecontrol of solid waste; and (c) provide financial resources to finance pollution control investments.The project aimed to achieve these objectives by helping to finance:
(a) investment by 80-100 private industrial firms in equipment and civil works tocontrol air and water pollution and improve waste management;
(b) the acquisition of vehicle emission testing equipment by 300-400 private garages asthe basis for mandatory vehicle inspection, which was expected to be introduced inthe MCMA;
(c) the establishment of a network of automatic air quality monitoring stations in theMCMA; and
(d) training for the staff of the Ministry of Health and Welfare (the agency in charge ofcoorAnating pollution control policies and enforcement prior to December 1982,
ANNFIX 2Page 2 of 6
87
when SEDUE was created), financial institutions and private companies as vwell astechnical assistance and studies.
3. The project was prepared with considerable care. A detailed Project Execution Documententidtled "Program for Pollution Control in Mexico" was provided to the Bank in July 1982, prior toloan signature.
4. The project failed to achieve most of its objectives. Only US$8.1 million of the US$60million Bank loan was disbursed, while US$51.8 million was cancelled. Total investment in pollutioncontrol, estimated at US$190.9 million at appraisal, amounted to only US$18.2 million; only 20 sub-projects were financed, less than 10% of the number originally expected. No requests for invest-ments in vehicle emission testing facilities were received, very little investment in solid wastemanagement took place and no technical assistance or training was financed from loan funds. Theone significant accomplishment of the project was that it financed the acquisition of air pollutionmeasurement equipment by SEDUE, providing the agency with an improved data base to measure theresults of pollution control programs.
5. The failure of the program to achieve its major objectives reflected the following factors:
(a) The Government's anti-pollution program was developed during the years 1978-1982, when oil prices were relatively high, the economy was growing rapidly,Government revenues were increasing and it was able to borrow large sums fromforeign comme-rcial banks. Shortly after loan approval by the Bank, Mexico founditself unable to meet its external obligations and was forced to begin a long, painfuladjustment process, which took the form of repeated major devaluations, sharp cutsin public expenditures and credit restrictions. During the prolonged period ofstagnation and recession, most private industrial firms faced daunting financialproblems and were unwilling or unable to borrow - particularly for investments inpollution control; and
(b) within six months of loan approval, the new administration modified radically theexisting institutional set-up by creating SEDUE. Moreover, faced with the over-whelming challenge of restructuring the economy, the authorities began to givelower priority to the anti-pollution effort. SEDUE was repeatedly reorganized,suffered major staff reductions and curtailments of its operating budgets. By1988, its manpower had been cut in half and its capacity to plan, establish technicalstandards and enforce regulations had been eroded. The original project strategyfor environmental control i.e. the adoption of acceptable standards and regulationsto implement environmental legislation and their vigorous enforcement, wasabandoned. In its stead, SEDUE adopted a policy of negotiating "social contracts"with industrial associations to define environmental standards and a time frame fortheir adoption. Without firm pressure for compliance, very little investment inindustrial poll-,tion control took place.
6. The Project Completion. Report contains a review of project performance from both theBank's and Borrower's perspective. Both agree that a precondition for the success of projectsdesigned to support industrial and vehicular pollution abatement programs is the existence and
Pape 3 of 688
strengthening of "an adequate legal and institutional structure", including trained professional staffs,operating under a policy mandate to plan and establish program priorities and plans of action "andadequate manpower, and budget allocations to support firm monitoring and enforcement ofstandards."
7. Decentralizatlon Porgm for the Mexioe City Region. Implementation of thispreinvestment project, supported by a US$9.2 million Bank Loan approved in August 1982, wasaffected by some of the same factors as the first Pollution Control Project. The project objectiveswere to prepare a comprehensive deconcentration investment program and the corresponding specificfeasibility and engineering studies for the Mexico City Region. Conceived during the period of rapidgrowth of the MCMA, abundant petroleum revenues and unprecedented levels of public investments,the project was implemented under a new administration during years of painful structural adjustment.As economic crises engulfed the country, public sector investment shrank and political support for theproject evaporated.
8. The total cost of the ptoject was estimated at US$1S.2 million at appraisal, of whichUS$6 million was to be financed from Government resources and US$9.2 million by the Bank loan.Even though the original closing date of the loan was extended by two years, only US$4.4 millionwas disbursed, and US$4.8 million was cancelled. The Government financed less than US$2 millionequivalent of the total project cost, which amounted to only US$6.7 million. Weak political support,institutional turbulence and fnwcial cutbacks resulted in a major shortfall to meet pioject objectives.The project completed only 14 of the 70 studies originally proposed; its one achievement was the highquality of its final report, which reflected a substantial change in policy orientation. It no longersupported a spatial policy, which would attempt to "steer" the city in a predetermined direction, butcame out in favor of policies such as the elimination of subsidies and inappropriate regulations, whichwould support market forces in dealing with the growth of Mexico City.
9. Implementation of the project was the responsibility of the "Planning Commission of theCentral Conurbation Zone' (CCCP), which had been established as a statutory body, widt indepen-dent legal personality and patrimony by a Presidential Decree in October 1976. SEDUE's Secretarywas president of the Commission, which had as its members the Regent (Mayor) of the DF, theGovernors of the States of Hidalgo, Mexico, Morelos, Puebla, TMaxcala and Queretaro, as well asdelegates of the federal district. When the Bank loan was signed, the CCCP had a TechnicalSecretariat with a staff of 80 people and well equipped offices in Mexico City and five state capitals.Dependence cn budget approval, left the CCCP vulnerable to funding delays, budget cuts and politicalinterference. With only partial and intermittent funding after 1984, the technical staff graduallyshrank to 20 persons and the Commission was liquidated in 1987. The Commission Committee nevermet in regular session after its inaugural ceremonies. While occasional meetings with individualrepresentatives of the member state governments took place, the project and the studies were notdiscussed or guided by the representatives of the states as a group. Only the DF and the SoM werereally interested in the project; the other states took little notice of the technical work of theCommission.
10. The major lesson to be learned from the failure of the project is that a regional planningInstitution which lacks assured sources of financing the authority to allocate a substantial volume ofinvestment funds and whose work is not guided and supported by all its members, is likely to beineffectual and, finally, irrelevant. As a result, the current Mexican Administration established a
ANNXL2Page 4 of 6
89
series of joint commissions whose membership is confined to the DDF and the SoM to study andharmonize policies and programs in dealing with various aspects of metropolitan development.
11. Flrst Urban Transpot Project In Mexico. In December 1989, the First UrbanTransport Project, for which a US$125 million Bank loan had been approved in May 1987, wasamended to provide financing for the following components of the MCMA Air Pollution ControlProgram:
(a) the acquisition of new bus engines for some 1,200 buses of Ruta 100, the enginesto meet 1990 California emission standards. TIbs component would a!so comprisespare parts, testing equipment and technical assistance for Ruta 100 in operationsand maintenance;
(b) the purchase of air quality monitoring equipment to upgrade SEDUE's existingfixed air quality monitoring stations, and establish new stations, especially in theSoM, as well as the acquisition of mobile monitoring units by SEDUE and of fivestations to monitor PEMEX's facilities, to be operated jointly by SEDUE and IMP;
(c) a traffic monitoring program to be carried out both in the DF and SoM;
(d) consultancy services to help the Steering Committee and Technical Secretariatprepare the Transport Air Quality Management Program and project; and
(e) the acquisition of laboratory equipment for IMP to enable it to undertake tests todetermine the optimum blend of gasolint and oxygenates which would result inreducing the levels of harmful emissions under the conditions prevailing in theMCMA.
12. Altogether, US$22.4 million were reallocated for these purposes, of which US$15 millionwere funds originally destined for bus purchases in the SoM and Nuevo Leon. These bus purchaseshad been conditioned on the completion of planning and tariff studies, and the buses, to be acquiredby private bus operators, were to be purchased under ICB procedures. Almost two years after theloan had become effective, the State of Nuevo Leon had not yet started to make the planning andtariff studies. While in the SoM the bus route and planning studies neared completion, political issuesregarding the balance between public and private bus operations, since resolved in favor of the privatesector, had greatly delayed the possible financing of private buses in that state. In both cases, therequirement that individual bus owners acquire their new units as a group under ICB procedures,proved unacceptable to them and was a major reason for the cancellation of both components andtheir reallocation to finance components of the Emergency Air Pollution Program.
13. Impiementation of the major components of the Emergency Program has progressed well.Ruta 100 exceeded its original target and procured 1,350 new engines under ICB procedures with theoriginally allocated amount, and the equipment for air quality monitoring has been purchased bySEDUE and is being installed. Lack of familiarity with the Bank's procedures for procurement andthe contracting of consultants, and the availability of grant funds from other sources, have been someof the reasons why the traffic monitoring studies have not yet been carried out, and IMP only recentiyprocured the laboratory equipment for improved testing of vehicles engines. Finally, the Mexican
ANE2Page 5 of 6
90
Authorities have preferred to use bilateral grant funds to secure the services of consultants to preparethe Tran-port Air Quality Management Program.
14. Experience to date in financing the First Urban Transport Project and, particularly, thecomponents of the MCMA air pollution emergency control prograrn, points up three problems:
(a) Attempts to force private borrowers to procure new vehicles by pooling theirpurchases and use ICB procedures are likely to render Bank financing of suchpurchases inoperative;
(b) the problems experienced in implementing some of the components point up theneed for an institutional arrangement which would coordinate the implementation ofall elements of the pollution control program in the MCMA on a full-time basis;and
(c) the Mexican authorities ar. understandably reluctant to use Bank funds to financetechnical assistance, when grant or soft loan funds are available from other sources.
15. The Sao Paulo Industrial Pollution Control Project in Brazil, for which a $58.0million loan (1822-BR) was aproved in March 1980, was the first free standing environmentalimprovement project financed by the Bank in Latin America, and one of the very few such projects inthe Bank. The project was directed at the problems of industrial water and air pollution in theGreater Sao Paulo Metropolitan Area, and did not deal with transport air pollution. Nevertheless, theimplementation experience of the project, which after a difficult start, achieved most of its objectives,provides a number of significant lessons, which are likely to prove helpful in the preparation andimplementation of the proposed MCMA Transport Air Quality Management Project.
16. The project, as appraised, consisted of a credit program, partially financed by the Bank,under which it was expected that some 600 sub-loans (250 for industrial air pollution control and 350for water pollution abatement) would materialize and result in investments in industrial pollutioncontrol projects, equivalent to about US$180 million. The project also included US$3 million intechnical assistance for CETESP, Sao Paulo State's Environmental Protection Agency, which,together with SABESP, the State's Water Supply Company, had identified the main sources ofindustrial pollution. The project and supporting Bank loan had two main objectives: (a) to reduceindustrial particulate matter emissions, to meet the State's air quality standards for particulatepollutants by 1983 and reduce the industrial discharge of toxic substances into Greater Sao Paulorivers, so as to achieve by 1984, some of the Federal and Sao Paulo State's water quality standards.The project was to complement Sao Paulo's sewage collection and treatment project; and (b) to buildup CETESP operational and technical capability to design and implement a long term pollutioncontrol strategy in Greater Sao Paulo and the rest of the state and train the staff so it could implementthJ enforcement program effectively.
17. Despite careful preparation, the project got off to a very slow start. By the originalclosing date of March 31, 1984, less than 2% of the loan had been disbursed. Paradoxically, duringthis period, when Brazil experienced its first serious economic recession in many years, a significantnumber of large industrial firms, pressured to do so by CETF-SP, invested their own funds in
Page 6 of 691
pollution control measures, but refused to use the Bank's funds because of 'the complex and lengthysub-project review and unfavorable on-lending terms". During 1982/83 the obstacles to the use ofBank funds were recognized and analyzed jointly by Bank staff and CETESP. A Special ActionProgram to accelerate project implementation was prepared. As approved in September 1984, theSpecial Action Program involved the following major changes of the project: (a) the Bank loan wasreduced to US$34 million; (b) taking the economic down-turn into account, Bank financing wasincreased from 33% to 50% of sub-project costs; (c) in addition to particulate air pollution controlsub-projects, the project would be able to finance the reduction of sulfur dioxide (SO2); (d) proceduresfor sub-project approval by CETESP and the Sao Paulo Development Bank were radically simplifiedand collateral requirements eased; and (e) the project area was extended to cover the entire State ofSao Paulo. Moreover, as part of the action program, pollution control enforcement was stepped up.
18. The above changes, together with an improvement in the local economy, yielded strikingresults. Within 9 months, by June 30, 1985, the loan was fully committed and fully disbursed byDecember 31, 1986. More significantly, the audit report concluded that the objectives of the project,as spelled out in the appraisal report had, by and large, been achieved. The most dramatic results, towhich the Bank-financed project made a significant cont-ibution, were: (a) the reduction of particulatematter emissions Ly industry of almost 70% in the Greater Sao Paulo area; (b) the reduction ofindustrial sulfur dioxide emissions by 82% in the same area; (c) the reduction of emergency alertconditions due to hazardous air quality during the critical winter months in the Cubatao area, the mostpolluted in the state, from six in 1982 to zero by 1986; (d) major progress in controlling ammonia,hydro carbon, floride, hydrogen sulfide and sulfur dioxide emissions by major petro-chemical andfertilizer plants in the Cubatao area; and (e) the effective implementation by CETESP and BADESPof a training program, which trained about 5,900 participants between 1982 and 1987, some 4,000from private industries and 1,900 staff members of CETESP and BADESP.
19. Both the air and water components of the project were affected by factors which escapedCETESP's immediate control. The fact that little progress had been made at that time in reducingvehicle emissions and in controlling the dust from traffic on unpaved roads in the ontlying areas ofGreater Sao Paulo disguised the successful reduction in industrial particulate emission. As for thecontrol of water pollution, construction of the collector system to receive pre-treated industrialeffluents - part of the Bank-supported Greater Sao Paulo Sewage Collection and Treatment Project -failed to materialize as a result of the economic recession and the lack of counter-part funds. Underthese circumstances, industries had little incentive to make costly pretreatment investments.
20. The following factors in the relatively successful implementation of the Sao PauloIndustrial Pollution Control Project are worth noting: (a) after an initial iather rigid approach, theBank showed commendable flexibility in modifying major features of the project, transforming apoorly performing project into one, whose "success exceeded expectations"; (b) the relative success ofthe project was due to a significant extent to the good organization and high competence of CETESP,the technical institution in charge of formulating and enforcing environmental controls; and (c)CETESP's training program has reportedly contributed significantly not only to update the technicalknowledge of its staff, but has made the staff of major industries more aware of the seriousness ofwater and air pollution and of the techniques for controlling them.
AbME 3Pagp 1 o2 92
MEXaCO
TRANSK j AIR OUALrTY MA1NAGEMENT PROJ1Cr FOR TIM
T1metable for Initiattng Completion and Discussion with the Bank ofTechnical Assistance and Studies
_m - inl-
Bank EstlmateJTECHNICAL ASSISTANCE Executing Sarting Date Ending Date Discussbn Consultant
AND SUDIES Agcy (Signib of (Completion and ManConsultant Ks) of KS) Comments Months
`TOR I Development of Vehicle SDEDSOL 04/93 08/95 Annual 48Emission Standards and ReviewRelated Regulation Mid-term
Revlow
TOR 2 Emission Standards SEDESOL 07/93 06/96 07/96 40Enforcement Annual
ReviewMid-termReview
TOR 3 Vehicle Inspection and CMPCCA 01/94 06/96 07/96 40Mainteanace System AnnualProgram Assesamnt and ReviewDevelopment Mid-tem
Review
TOR 4 Technical Assistance - DDF 09/92 08/94 Annual 24lmplementation and Iaitial ReviewOperation of Upgraded Mid-temInpection and Maintenance ReviewSystem
07/93 06l94 07/94TOR S Vehicle Registration Systm DDF Annual is
Review
TOR 6 Slection, Procurement, and DDF 04/93 12/94 01/95 18Acceptanco Testing of AnnualStago 1 Rebelig ReviewVapor Recovery Systems
fi~~~~~~~~~~lg 2.12
M-COTRA^NSPORT MUnAt Flog TMNT
Tnmetable for Initiation. Cmnietlon and Dh_sstln with the Bank_ot
Amsme d Studies
anmkhUCUNICAL ASSISrANCE Ex.cuUn Strt Date Ending Date Dbesusbi Estimated
AND STUDIES Agenq W eg of (Compleion of and ConsultntComnutat U) KS) Comments Man Mont
TOR 7 Alernaive Fuel Pilot CMPCCA 04/93 12/94 01/95 30Program Technia Annual
Support ReviewTeam Mid-trm(DDF) Review
TOR S Tranpot and Air Quality COTAM 04/93 12194 01/95 1SSStrate Annual
Review
Review
TOR 9 3centific Ban Suies CMPCCA 07/93 06/96 07/96 210SEDESOL A.nualMistry of Reviow
Health M~~~~~~~~~~~~~.id-term._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ Review
TOR 10 Project Coordinator CMPCCA 09/92 06/96 07/96 24Tecbnic AnlSuppot RviewTeaM Mid-tm(DDF) Review
TOR 11 Technical Assso t to dhe CMPCCA 04/93 0696 07/96 278CMPCCA Techdal Ana
Support ReviewTeam Mid-term(DDF) Review
TOR 12 Annual Eavronmetl NAIN 09/93 12196 Annud 12Audt, Review
Mlid-term,Review
Pqge i of 694
MEXICO
TRANSPORT AIR OUALmX MANAGEMENT PROJECT FORJI
MEXICO CITY METROhALITAN AREA
Credit Lines
Background
1. The Government has embarked on an ambitious program to reduce air pollution in the MCMA.In the last year it has announced plans to modernize the taxi, minibus and combi fleets anit recentlyannounced a program to modernize the truck fleets operating in the MCMA and to convert trucks andother vehicles from gasoline and diesel to much less polluting liquid petroleum gas (LPG) orcompressed natural gas (CNG). These programs will be extremely costly to implement and, althoughsome of the resources are expected to be supplied directly by vehicle owners themselves and vehicleowning enterprises and by financial institutions, such as commercial banks and leasing companies,project beneficiaries are in many cases individual owners or smaller enterprises which have nottypically had ready access to fir nce. While a number of taxis have been purchased with owners'resources and through commercial banks, it is clear that the replacement of older taxis with newvehicles will be greatly accelerated by making available resources for this purpose. A number ofminibuses have been financed by leasing companies but their resources have beeh limited and it isestimated that the number of new minibuses that could be acquired each month to replace older,highly polluting combis could be doubled if adequate finance were available. The project thereforeincludes resources to establish lines of credit in BANOBRAS and NAFIN to finance new vehicles, forconversion, re-engining and retrofitting of vehicles and for the acquisition of inspection equipment.BANOBRAS would finance the acquisition of passenger vehicles and common carrier trucks ownedby individuals. NAFIN would finance new, company owned trucks and their conversion, re-enginingand retrofitting and the acquisition of inspection equipment by private inspection stations.
Justification for the Credit Lines
2. The forced high-use vehicle replacement and conversion programs will generate large positiveenvironmental benefits which justify Government intervention. This intervention could be in the formof tax incentives or other administrative measures, such as direct subsidies, as well as through asubsidized credit programs. However, taxi owners and owners of other vehicles (such as minibuses,combis, buses, third party trucks) are small operators who are not normally taxpayers; their behavioris unlikely to be affected by a tax incentive program. Moreover, a system of direct subsidies wouldbe difficult to design and administer. The vehicle and other programs which would receive financingthrough the credit lines are high priority replacement programs which must be carried out within arelatively short time period and which impose additional costs on vehicle owners and operators.Although a significant part of the replacement and conversion program will be carried out by largerenterprises and individuals with adequate access to credit, much of the program will be carried out byindividuals or small enterprises with limited access to credit. Specific credit lines, such as the creditline for taxis, designed to meet the credit needs of these beneficiaries, are expected to facilitate theimplementation of these programs and accelerate the replacement and conversion programs.
ANNEX4Page 2 of 6
95
Replacement is unlikely to be achieved on a timely basis and on the massive scale intended unless anadeqvi - e amount of credit is provided on reasenable terms. The final lending rates on sub-loanswould be consistent with the lending policies of BANOBRAS and NAFIN and would be be!owzresent market levels by about 4% to 6% p.a. based on current Interest rates (a sub-loan lending rateof 271. to 29% p.a. compared to a commercial rate of about 33% p.a.). The subsidies, while notlarge, should encourage small independent vehicle owners and small enterprises to purchase ntwvehicles to replace their old vehicles rather than replacing them with newer used vehicles. Thiswould have a positive impact on pollution reduction and would well justify the credit subsidy. Itshould be noted that all interest rates will be positive in real terms, and is not expected to result in afiscal burden, as the scheme is designed to merely pass on to beneficiaries the favorable terms of theWorld Bank loan.
BANOBRAS Credit Line
Taxis
3. A taxi fleet modernization program for the MCMA was launched by the Mexican Authorities in1991. In the DF, the objective is to replace all taxis more than 6 years old with newer vehicles. Inthe SoM, the objective is to replace all taxis more than 10 years old with newer vehicles. When theprogram was introduced, some 93% of the fleet in the DF was 1985 vehicles or older, indicating thatsome 55,000 vehicles would have to be replaced. Between April, 1991 when the replacementprogram was announced and mid-February, 1992, the number of 1985 and older taxis had beenreduced from about 55,000 to 38,400 and the number of 1986 and newer taxis bad been increasedfrom a little over 4,000 to some 20,700 vehicles, of which 7,919 were new vehicles. The aim of theGovernment is to facilitate on-going fleet renewal so that no DF taxi would be more than 6 years old.Replacement policy in the SoM is to be changed by the end of 1992 to set the same policy goal as inthe DF. However, to be conservative, the credit demand forecasts given below focus on thereplacement program for the DF.
4. BANOdRAS announced the establishment of a credit line to finance new taxis in April, 1991.After some months it has established credit lines through three commercial banks (Banca CREMI,Multibanco COMERMEX and BANPAIS), two development banks (BANPECO, BANJERCITO) anda group of Volkswagen distributors and their agents (AFASA/SEVASA). After initial delays,reflecting the time needed by the financial intermediaries to resolve issues such as loan guarantees,collateral and vehicle and life insurance, the line of credit is being ulsed fairly effectively, especiallyby BANPECO and the Volkswagen distributors. BANPECO specializes in small loans and hasestablished an office for taxi and minibus loans and is expected to continue to be an importantintermediary both for taxi and minibus loans but also eventually for loans to finance trucks owned bysmall, individual operators. Banca CREMI has also established an office to deal with taxi andminibus loans and is expected to play a more important role in financing these vehicles in future.The Volkswagen distributors have been an important factor in new taxi finance as more than 85% ofnew taxis financed have been Volkswagen beetles. This could change in the future, particularly if theVolkswagen beetle can not meet 1993 emission standards and, as a result, could not be acquiredunder the replacement program. The Volkswagen distributors will not be participatirg financialintermediaries under the proposed loan.
] ,e1 of 696
5. Of the 7,919 new taxis acquired, to date under the modernization program, 2,437 (about 30%)have been financed with BANOBRAS resources. The remainder have been financed with taxi ownersown resources or through other financial institutions. Some of the taxi owners have fleets of taxisand the financial standing to obtain bauk financing on commercial terms. Others have joined'autofinanciamento' (self-financing) schemes. These are schemes whereby a number of taxi buyersjoin together to make a sufficient payrrnt each month to purchase one vehicle. The vehicle isawarded by lottery each mouth so that At the end of say 36 months each participant has a vehicle.Unfortunately this lrjnd of program spreads replacement over 36 months. It is expected that thereplacement program wIll be accelera zed now that the BANOBRAS credit program is in pi, ce.
6. Credit Demand Estimates. Pnome 800 new taxis are being purchased each month and it isexpected that by the end of October, 1992 there will be some 8,000 1992 model taxis operating in theDF. In 1993, it is es, . -led that up to 10,000 1993 model taxis will be purchased in the DF. Inkeeping with the objective that taxis should be no more than 6 years old, some 25,000 taxis areexpected to be replaced during the project period (1993-mid-1996). On the assumption thatBANOBRAS resources will finance about one-third of new taxi purchases, some US$31.0 million hasbeen provided in the proposed .'oan to finance taxis. This amount is sufficient to finance 85% of thecost of 2,800 new taxis (the remaining 15% is the down payment required by partisipating financialintermediaries to be paid by taxi owners). Sub-loans for taxis are usually repaid in monthlymstallments over 36 maonths. Sub-loan repayments could be used to finance additional taxis, and it isestimated that, including such reflows, some 7,500 taxis could be financed with Bank resourcesduring the project period.
7. Chara!-teristics of the Proosed Credit Line for Taxis. Sub-loans would be made toparticipating financial intermed.aries (PFIs) by BANOBRAS at CETES plus one and one halfpercentage points and would be onlent by PFIs of up to CETES plus seven and one half percentagepoints and no less than the GIRA (General Interest Rate Agreement) rate, thus providing the PFlswith a financial spread of up to six percentage points to cover the loan risk, the cost of authorizingand administering the credits and of providing a reasonable profit on ,he lending operations. Sub-loans would be for up to 36 months with monthly repayments and a maximum one month graceperiod.
Minibus
8. Tne Govermment has promoted for some time the replacement of smaller combis with largerminibuses. Beginning in 1989 some 18,000 iiunibuses have been acquired in the DF and theobjective is to increase the minibus fleet to some 25,000 vehicles. Most of these vehicles are beingfinanced by leasing companies for up to 2 years at commercial rates. Through this process about 400minibuses are being acquired per month. The Authorities estimate that the acquisition rate could bedoubled if additional finance could be provided and especially on a longer term basis. BANOBRASconsidon: that loans of up to four years are needed for minibuses and is establishing a credit line onthis basis. It has not had the resources needed to establish such a line but has been discussing termsand spreads for a credit line for minibuses with some of the commercial banks now financing taxis.It Is proposed to include in the loan some US$23.3 million to finance an estimated 850 minibusesduring the project period. This would accelerate the minibus acquisition program with consequentreduction in pollution in the MCMA. Sub-loan reflows could be used to finance minibusreplacements in subsequent years, additional taxi purchases if the credit line for taxis is inadequate or,more importantly, buses. New buses, both in the DF and the SoM will be required for the newtransport corridors between the DF and the SoM which are being opened to private operators.However, the financing of buses will depend upon the transport studies for the MCMA being carriedout under the proposed project.
Pe 4 ot697
9. Cha_teristics of the Pro_Med Credit Une tot _Nibi'es,. Funds would be provided toPFIs to finance minibuses at CETES plus one and one half percentage points as in the case of sub-loans for taxis. Funds would be onlent by PFIa of up to CETES plus six and one half percentagepoints and no less than the GIRA rate thereby providing the PFIs with a financial spread of fivepoints to cover the sub-loan risks, administrative costu and to provide a reasonable return. Loans forminibuses are on average four times as large as a typical taxi sub-loan thereby reducing administrativecosts per peso lent. They are also considered to be less risky loans than those for taxis, because oftheir greater financial viauility. Sub-loans for minibuses would be for up to four years with monthlyrepayments and a maximum one month grace period.
Common Carier Trucks
10. A regulatioa recently issued by the l:F requires that all common carrier (third party) trucksprior to model year 1977 must be replaced with more modern vehicles. There are some 18,400vehicles registwed in the DF in this category of which some 9,700 are models 1976 and older.1 -cause of the expected limited availability of used trucks ir this category it is expected that therewould be a significant replacement of old vehicles with new vehicles if credit were available tofinance them. Moreover, a recent study by COTAM indicated a shortage of vehicles of this typerelative to the demand and it is expected that the number of concessions for common carrier trucks inthe MCMA will be increased in the near term. At least 2,000 new common carrier trucks areexpected to be acquired annually for the next few years to modernize the common carrier fleet in theMCMA. It is expected that some 6,000 older vehicles will be repl- A with new vehicles during theproject period. A line of credit has been included in the project in the amount of US$26.0 millionwhich would finance about 1,400 trucks (2,350 could be financed with sab-loan repayments duringthe implementation period mid-1993 to mid-1996).
11. Characteristics of the Proposed Credit Ulne for Common Carrier Trucks. Sub-loans forcommon carrier trucks are expecteui to have the same terms, interest rates and financial spreads asthose for minibuses.
NAFIN Credit Line
Own Account Trucks
12. As mentioned above, the DF recently issued a regulation requiring that all trucks prior to model1977 must be replaced with more modem vehicles. There are some 127,000 trucks in companyfleets, of which 26,700 are models 1976 and older. It is expected that at least 70% of these vehicles,or about 18,700 will be replaced between 1992 and 1997 with new vehicles, of which about 10,000would be replaced during the project period. It is also estmated that a large number of thesevehicles, which are owned by larger enterprises, will have adequate access to finance through theirnormal banking relationships. However, at least 25% of the vehicles belong to smaller companieswhich are likely to face constraints in their access to financing. Hence, it is expected that theirreplacement programs will accelerate if finance is available through a NAFIN credit line. A line ofcredit in the amount of US$52.0 million has been included in the loan which is sufficient to finance85% of the cost of acquiring about 2,800 trucks of this kind (about 1,700 light trucks of about 3.5ons and 1,100 medium sized trucks between 3.5 and 8.5 tons). Assuming truck sub-loans were for
36 months on average, some 4,500 trucks could be financed with Bank funds during the projectimplementation period assuming that sub-loan repayments were relent to finance additional truckacquisitions.
ANNEX 4Page 5 of 6
98
13. Characteristics of the Proposed Credit Line for uck Fleets For this line of credit,NAFIN proposes to use the same interest rate structure as irn its environmental program ("Programade Mejoram:ento del Medio Ambiente"), where interest rates to PFIs would be CPP minus twopercentage points, CPP minus one point, CPP, and CPP plus one point to microenterprises, small,medium, and large firms respectively, and final lending rates to sub-borrowers would be up to CPPplus six percentage points and no less than the GIRA rate. Loans to microenterprises would havespreads of eight percentage points, loans to small enterprises seven points, loans to mediumenterprises six poiits and loans to large enterprises five points.
Emissian Control nversion
14. The Government recently introduced its program to replace old passenger and freight vehiclesand to convert newer vehicles to LPG or CNG. The program is to convert some 129,000 freightvehicles which are 1977 and newer to LPG or CNG between 1992 and 1997. About 72,000 of theseconversions are expected to be carried out during ihe project implementation period, mid-1994 tomid-1996. The average cost of conversion per vehicle is low (about US$2,850 for a conversion toLPG and about US$4,450 to convert to CNG or US$2,360 and US$3,600 respectively net of tax andduties). Large fleet owners are expected to use thoir own resources or obtain financing from theirregular sources. However, there is a significant number of enterprises, especially medium size firms,which own fleets of trucks which would accelerate the conversion of their vehicles to LPG or CNG iffunds were available on suitable terms for this purpose. To meet these credit needs some US$30.0million has been included in the loan to finance 85% of the cost for some 11,400 conversions (about80% to LPG and 20% of conversi' s to CNG).
15. Characteristics of the Credit Line to Finance Truck Conversions. The credits would financethe conversion of trucks owned by enterprises located and operating in the MCMA. The conversionsand retrofitting would have to be with equipment approved by the authorities on post-1977 vehicles.Sub-loans would be made by PFIs and would be for up to four years. Interest rates on sub-loanswould be those recommended above for loans to micro, small, medium and large enterprises.
Emission Testing and D2iagnostic Equipment for Computerized Emissions
16. Existing private-garage inspection stations in the MCMA would be required to upgrade toadvanced computerized emissions analyzers by January 1, 1993. They would be subject to rigoroustraining and licensing requirements, and stringent oversight and the number authorized is expected tobe reduced from some 800 stations now operating in the MCMA to about 600 stations. Emissiontesting and diagnostic equipment meeting technicfd specifications acceptable to the Bank would beeligible for financing through a credit line to te established by NAFIN for this purpose. It isexpected that about half the stations purchasing the emission testing and diagnostic equipment wiilrequire finance. US$7.1 million has been included in the loan to finance 85% of the total cost.
17. Characteristics of the Credit Une for Emission Testing, and Diagnostic EquiRment. Sub-loans through PPIs would finance 85% of the cost of analyzers for up to two years at NAFIN's usualinterest rates for loans to the categories of enterprises into which the inspection stations would fall.
Summa' of Program on which Credit Demand Estimates are Based
18. Below is . summary of the number of vehicles and emission testing and diagnostic equipme".twhich will be acquired or converted during the program period 1991-1997, those whlich will be
pase 6 Of 699
acquired or converted during the project implementation period, 1993-1996 ar-i the number of theseInvestments which will be financed by the credit lnka. established under the proposed loan. The loanwould finance these investnnts through initial disbursements from the proposed loan or fromrepayme:ts of sub-loans financed with such resources. It Is expected that additiona! taxis and truckswould be financed with sub-loan repayments. It is not known to wbat extent such reflows would beneeded to finance additional minibuses or emission control conversions or re-engining and retrofittingand thus only tentative estimates coulrd be made. Reflows from the initial sub-loans to financemicrobuses and conversions are expected to be used to finance buses, additional taxis or tricks orother investments in the program which can be financed through credit lines.
B . ~~~~~~~~Total
.9.1,. 93 |Fianed Financed Financed By| Prograin - ProJect - By Law- By Reflows - Loan -
No. of No. of No. of No. of No. of_ Vehicles Vehicles Vehldcs Vehics Velicles
VEHICLES _ _
Taxis 55,000 25,000 2,800 4,700 7,500
MinIbus.. 12,000 3,000 850 850
TwCks ___ __ =_____
, i Patty 10,000 6,000 1,400 900 2,350
O. n Accout 18,700 10,000 2,800 1,700 4,500
Conversions 129,000 72,000 11,400 .. 1 1_11,400
JNSPICTION AND MX4TENANCE SYSTEM
Emission Testing and 600 600 300 300Diagostic EquipmeIfor Private Gaages
~x3Pap I of 2 100
ACO
PROJECT COMPONENTS/SUDCOMPONENTS 92/2 "n/ 312 941 94/2 95/1 9s52 9611 %2 97/1BY SEMESTER
1. VEHICLE COMPONENT
(a) Emission Stndads Sub-component:(Development) - , - -
(b) Emission Standards Sut-component.(Enforcement) . -
(c) IVM System Sub-component:
1) High Volume Inpection Staiions
2) Emission Testing and DiagnosticEquipment in Private Garages
3) I/M Monitoring and Enforcement
4) VIM Program Assessment andDevelopment - -
5) Supervisory Consult'nt _ - - -
6) ispector/Mechanic Training Program - -
(4) High-use Vehicle Fleet Modemizaton
Sub-component:
1) Taxs- - - - - - -
2) Trucks (Common Carrier) - - - - -
3) Trucks (Own Company) - - - __ -
4) Trucks (LPGICNG Conversion)
5) Minibuses and Buss - - - =
(e) Vehiclo Ragistration Systom
-- - ; _ _ _m _ =_
101 Page 2 of2
ME=COTRANSPORT =] OUALrrY MANAGEblr PR.ECj FOR TFEE
NMEXasO C-Iff MWOPOIITAN E
Im2lementation Schedule
PROJECT CONMPONENTSJSUB-COMPONENTS 922 9311 932 94n 94/2 95/1 9n2 %/ 962 97"1BY SEMESTER
11. FUEL COMPONENT
(a) Gasoeine Vapor Recovery Sub-component(Stage O & I PEMEX) -
(b) Gasoline Vapor Recovery Su)-compoaent(StwgeI& PDr&SM) - _ - -
(c) Alternative Fuel Pilot ProgramSub-component -
111. TRANSPORT POLICY ANDMLANAGENMENT COMPONENT
IV. SCIENTIFIC BASE CONhONENT
(a) Technical Assistance for CMPCCA _ - _
(b) Equipment (SEDESOL)
1) Extension of Air-Quality MonitoringSystem- - -
2) Equipment and Sotfware for Short-ToemPollution Forecasting - -
(c) IMP Mobile-Source Emission Laboratoty -
V. INSTITUTIONAL STRENGThENINGCOMPONENT
(a) CMPCCA Tecbuical Support Team - --
(b) Annual Environmental Audit
ANNEX 6Pape of 4
102
MFMCO
TRANSPORT AIR UX MANARbg PROJECT FOR TBIEME7QOCrY M,_^ RE
Resnslbilitis of Executlne Asedes
PROJECT COMPONENTS/SUCOPONENTS EXECUTIG RESPONSIBLE FOR:AGENCY
L Vddde Component
(a) Development of Vehicle Emission SEDESOIJINE Contracting consultants and laboratory tests to assistStandards INE in developing and promulgating new or revised
emission standards.
(b) Enforcement of Emision Standards SEDESOLIJNE Contracting consultants and laboratoies to help INEin carrying out a program of surveilance testing ofvehicles in service and prepare specs and costestimates for SEDESOL testing laboratory.
(c) I/M System Sub-componenl
1) High-volume Inspection Stations DGE of DDF Issuing concessions on a competitive basis to privateand SoM/SE sector to construct, finance and operate high-volume
inspection stations and supervising their operation.
2) Emison Testing and Dignostic DGE of DDF Issuing regulations requiring private inspectionEquipmnot for Private and SoM/SE and stations to instaU emission testing and diagnosticnspection Stations NAPIN equipment by specific date and through stricter
licensing, more rigorous training and inprovedoversight of their operation. NAFIN would beresponsible for the operation of a line of credit,which would enable owners of prvate inspectionstations to obtain financing from financialintermodiaries to purchase emission testing anddiagnostic equipment.
3) TIM Monitoring and Enforcement DOE of DDF DGE will be responsible for procuring, setting upand SoM/SE and operating computer center to support monitoring
and enforcing I/M Program in MCMA. DOE andSoM/SE to carry out overt and undercoverenforcement.
4) I/M Assssmet and Deveopment CMPCCA Contrcting consultants to assess effectiveness of JIMTecbnical program on basis of continuing program ofSupport Team laboratory emission testing, and in light of findings(DDF and update J/M test procedures and standards.SoM/SE)
5) Supervisory Consultnt DOE of DDF Contracting conwltant and supevising his wor.
ANNEX CPago 2 of 4
103
~COTRASORT AIR OUALlT MANAGEbMEN PILOJECT FOR THE
MEaCO CIT M13TROPOLfTAN AMEA
Responuibilites of Executlna Agences
R QJECr COMPONENMSUB-COWONENTS EXECUTING RESPONSIBLE FOR.AGENCY
L Veb e Component (cont'd.)
6) lnactor/Mechanic Taining DGE of DDF, ICIC will be responsible for preparing and carigProgram SoM/SE and out the training program with technical assistance
Association of from GTZ, in close collaboration with DGE of DDFInspection and SoM/SE.Stations throughICIC (TraiingInstitute ofConstructionIndustry).
(d) Eigh-use Fleet ModenizatonSub-comPonent:
1) Taxi Replcement DGAU and DGAU and DGVT/SoM will be responsible forDGVT/SoM, issuing new or amended regulations to unify ageCMPCCA and criteria for taxi modernizAtion and disposal of olderBANOBRAS replaced vehicles in line with program set by tho(for line of CMPCCA. BANOBRAS will be responsible for thecredit). taxi replacement line of credit, through which private
taxi owners will be able to finance acquisition of newvehicles with credit from financial intermediaries.
2) Truck Replaemet DOAU of DDF DGAU of DDF and DGVT/SoM will be responsibleand for issuing new or amended regulations in line withDGVTlSoM, program set by CMPCCA on truck replacement.CMPCCA and BANOBRAS will be responsible for the line of creitBANOBRAS to replaeo 'common carrier (third party) trucks andand NAPIN (for NAFIN for the operation of a line of credit for 'ownline of credit). accountO truck replacement.
3) Trks LPG/CNG Conversion CMPCCA and DOE of DDF and SoM/SE will be responsible forits Technical issuing new regulations on LPG and CNGSupport Team, conversion of trucks in the MCMA, based in pat onDGE of DDF, the altemative fuel Pilot Program, to be designed andSoM/SE and monitored by the CMPCCA Technical Support TeamNAFIN (for Ine (see H(b) below). NAFIN wil be responsible for theof credit). operation of a line of credit to finamc truck
LPG/CNG conversions.
104
MEXICO
maOJuc _ CcOAMNENTSSV2C O MS EXECUflNG RESPONSEBLE FOR.
L Vhie Compout (coamd.)
4) M oinus (tvlcemm of combis, COTAM, COTAM, in conutation with CMPCCA, will beold minibuses an coavaviam to CNO, CMPCCA ad reponsble for defining t fiue role of vaiousre-engining Sd rtofittan of pblic BANOBRAS tpes of bues. BANOBRAS would e rsponasiblep_as vebic) (for lin of for the mbus line of credit.
credit).
(e) Vehicle RegistratonSystm. DGAU of DDF, DGAU of DDF will be responsible for contractingDVGT/SoM ad coosultants to design an appropriate system toCMPCCA. improve codinaon and linkages betw the DDP
and SoM rsration and dat bas systeam System. to be implemented in stges by DGAU of DDF and
DGVT/SoM with suport from CMPCCA.*EIL Fu Compom_ t
(a) Golin vao Recovery CMPCC. Woking Groups will be responsible for wordinationSub-componet Waing Gwp of fiasl desin and implementation of vapor recovery
of PEMDC, tm PEMEX will be reponsible, in coordtionDGE of DDF with DGE of DDF and SoM/SE, for implemetingad SoM/SE vapor recovery systm installed at ptoleum
Wuppored by teminal ad tank trucn (State 0 and 1). DGE ofCMPCCA DDP will be rsponsible, in coondinaton withT ochical SoMlSE and PEMEX, for implementing vaporSupport Tem recovery systems at sevo station tn and tabil
goline pumps (StWa I and U).
(b) Altnatve Ful Pot Pr m CMPCCA CMPCCA will be responsble for desiing andSub-cpent Tochnical pe ting pilot pgram with assistance of
Support Team ou t it would contract; will monitor in-sevice(DGPA of perfon c of LPG and CNG and electric powe-DDP). driven vhiocles and ue result to refine overall gs
convesion progrm.EL Tranepet and Mang.n
Component COTAM under COTAM will b reponible for developig anauspie of legrate, Tansport and Air Quality MmaagenCMPCCA and Stategy for the MCMA with the hep of consultantsits Technical to be cotacted by the DGPA of DDF.Suo Tm(DGPA ofDDP).
Paop 4 of 4105
MEXICO
=~~~~~~RNPR ABXtI&IITFOITH
PROJECT COMIONENTS/SU3-COMONENTS ExEcITflNG RESPONSIBLE FOR.'AGENCY
IV. ScienDtifIc Base Component
(a) Technical Ausis to the CMPCCA to CMPCCA DOPA of DDF will be responsible for contactingImprovo the Scientfic Ban Tochnical and pevising the work of an expert consultant
Support Team teem which is to provide tehnic assisunce to(DGPA of DDF) CMPCCA's Technical Support Team and itsand CMPCCA Workig Groups in carying out a series of stdis toWoring Groups improve the scientific base for air qualitywhich includes magmect in the MCMA.SEDESOLANEand thoe M;Dtyof Health.
(b) Equipmmt and Softwa for SEDESOLANE SEDESOL/NE wil be responsible for procunng andSEDESOLJINE to extnd air monitorng operating the equipment and software on basis of
systm in the MCMA nd ipove sifications and bid documents prepared by expertshort-term pollution fotig tam providing technical asistance to imprvo the
sciantific bae.
(c) Expansion of Mobie-source Emissios IMP IMP wil be responsible for procuring and operatingLaboratory of DIP additional equipment for mobile-source emission
tsting.V. Institutional Streanening Component
(a) Strengthening the CMPCCA Technica CMPCCA CMPCCA will be responsible for conbacting long-Support Team Technicd and short-tam consultants, including a Project
Support Team oordinor, who wil asist the CMPCCA Techical(DOPA of DDP) Support Team in the oversight of the implementaion
and offectivenes monitorng of the overall air qualityprogm and its constituent puts including theproposed project and its components, and will, ifneeded, povide technical assistance to other agenciesdealig with Transport Air Polution, particularly inthe SoM. TMe project coordinator will berespoDsible for the preparation of the projectprogrs reports.
(b) Anmua Enviromental Audit NAFIN NAFIN will be responsible for contracting a goupof indpendn te cal experts, who would conductmua eavionmental audits in order to detmie towhat extent public and private sector agencies andoqgnis au meen thir ar quality targets.
ANNEX 7Page 1 of 1
106
MEXCO
TRANSPORT A1R OUAITY MANAGEMENT PROJECT FOR THE
MEXICO crrN METROPOlrrAN AREA
Allocation of Loan Proceeds
Amount of the LoanAllocated
Category (Expressed in US$ % of ExpendituresEquivalent) to be Financed
1. Vehicles 132.3 85%
2. Vehicle Conversion and RetrofitParts 30.0 85%
3. I/M Equipment 7.1 85%
4. Laboratory Equipment 7.7 85%
5. Consulting Services 25.0 100%
6. Equipment for Vapor RecoverySystem 17.4 85%
7. Civil Works 0.5 85%
TOTAL 220.0
ANNEXPage I Of 1
107
MEICO
TRANM , AIDR OUA1TMEANT PROZ Ea TJI
MEXICO Crf N 1OPOL1TAN AREA
Estntd Schedule Of 1BankC Looan DisbnletmlsS(to Milion of U.S. Dollars)
IIBRD Fiscal Year and Quarter Quartr(Ending Date) Disbursements Cumulatve
I99aMarch 31, 1993 35.0a/ 35.0June 30, 1993 8.0 43.0
1994September 30, 1993 16.0 59.0December 31, 1993 16.0 75.0March 31, 1994 19.0 94.0June 30, 1994 19.0 113.0
1995September 30, 1994 20.0 133.0DeCember 31, 1994 20.0 153.0March 31, 1995 17.0 170.0June 30, 1995 17.0 187.0
996September 30, 1995 7.0 194.0December 31, 1995 6.0 200.0March 31, 1996 5.0 205.0June 30, 1996 4.0 209.0
SePtember 30, 1996 4.0 213.0DeCember 31, 1996 4.0 217.0March 31, 1997 2.0 219.0June 30, 1997 1.0 220.0
I Inbudes US$20 million for ft special acc and US$7 million for rtoatve fianing incured afterMay 1, 1992.
ANN 9Page 1 of 5
108MEXICO
TRANSPOT I OUALrrY PUNGN[ ROJECT FOR TRE
ME3aCO CffY^DrOOlA AREA
hnieiementaton Indicators
COMPONENT AND SUB-COMPONENT TARGET TARGET AGENCYDATE
1. VEMHCLE COMPONENT
ENMSION STANDARDS
- technical assisance: emission sandards (TOR 1) SINED CONTRACr 04/93 SEDESOL
Heavy-duty Diesd Emissons- promlgation of initida stadads PROMUWLAION 12/92 SEDESOL 0- promdgation of revised standards PROMUi!AMON 12/94 SEDESOL
Mnibues and Medium-duty Vehice Emnssions- promulgation of stddaids PROMUAn1ION 12/93 SEDESOL
Durablty, Wanty, ln-service Complianc- promdgaion of procedur PROMUXLAnON 12/93 SEDESOL
Evaporative Enm ons- promuWgationof standards PROMULATIAON 12/93 SEDESOL
Fuel Standards-review completed ORT 12/93 SEDESOL- technical asista: emission sandards (rOR 1) COMeLEMON OF
CONTmACr 05/95 SEDESOLEmission Standards Enforcement- technical assisnce: emission testing (TOR 2) SIONED OONTRACr(S) 07/93 SEDESOL- thnical assisa: emission testing (TOR 2) COMPLBIION OF 06/96 SEDESOL
CONTRACrINSPECTION/MAINTENANCE SYSTEM
HighVolume Inspection Stations- total umber of laes availble for opetion mnnmM 54 LwEs 12/93 DDF
and SoMEmision Testing and DiagnosticEquipment In Private Garages-pwcenage of private sions euipd with
emission testig and diagnostic equipmns: DDF 100% 12193 DDF- percentage of privat stios equipped with
emission tetig and dagnosti equipment: SM 100% lV93 SoM
LIMROGRAMAmSESSbM EY i
- DDF staff in-place 25 srAFF IN PLACs 01/94 DDF- SM saff in-place 10 sTAFF IN PLACE 01/94 SoM- tehnical assistne: manageqent contactor (TOR 3) SIaND CONTRACr 01/94 CMPCCA- techncid asstme: management conractor (TOR 3) COMMON OF 06/96 CMPCCA
._M_ A COTRAI
109 Pao2 .15amco
COMPONENT AND SUB-COMNONENT 1 TARGEr | TARGET 1 AGCYi__________ DATM _____
1. VEHICLE COMIONENT (coat.)
IIM SUPERVISORYCOSITN
- tknlcal ance: I/M consulnt (NOR 4) 8lN5 CONTUACr 09t92 DDF- L.hnlcal asisance: I/M consutnt (rOR 4) coMTBrIot oP 0U94 DDP
CONTRACrINSPECTORMECHANIC TRAINIG
- number of trained spedon And mechanics 1500 1293 DDFand SoM
HIGH-USIE VEIICLE FLEET MODERNIZATION -LNES OF CREDIT (see note 1)
TAIS- new taxis under Project 1993-96 up To 25000 06/96 CMPCCA- now taxis financed by World Bnk bl up To 2800 06196 CMPCCA- new xis financed by reow. of Word Dan lnds up To 4700 06/96 CMPCCA
Tr1eb - Own Acmount- new tuks under Project 1993-96 UP TO 10000 06/96 CMPCCA- new uck financed by World BDnk loan up To 2800 06196 CMPCCA- new truck financed by eflows of Wod Bank minda uP To 1700 06196 CMPCCA
Truck. - Tw Pary- new trub ck der Project 1993-96 up To 6000 06196 CMPCCA- new trucb financed by World Bank loan UP To 1400 06/96 CMPCCA- now tuks financed by reflows of Wodd Bank funds UP To 950 06/96 CMPCCA
Trwcls - Convwsins (LPG - CNG)- truck convesions under Project 1993-96 uP To 72000 06/96 CMPCCA- tuck conveaions financed by World Bank lon uP To 11400 06196 CMPCCA
- new minibuses under Project 1993-96 UP TO 3000 06196 CMPCCA- nw minibuse financed by World Dank loan up To 850 06196 CMPCCA
VEIHCLID REGISTRATION SSE
- tcnc assistanc: vehIcl registion sysm (OR 5) SEW CTiACr 07M93 DDF- inist1mn: DDF Al4Sr lAOT 06194 DDF
COMPaD- installation: SoM NsrALAo 06/94 DDF
PnirID Nad SoM
- chnical assistance: vehicle reisadon stm (NOR 5) o naw or 0W94 DDPc5fafcr nd SoM
Note: A fuz'Ar brekdown rad vehce iacd by dw Wordd Bak L_anc dw. in Table 1 to this Ann=
ANNEXPage 3 of S 110
MEXICOTRANSPORT Arlt OUAllY= U4EDN PC2- O
kfEIOCO Crff NDETOPOLffAN AREA
Implemengtatln Indieator;
. . .- .y -_ZOMPONENT AND SUB-COMPONENT TARGET 'jARGET AGENCY
- ~~~~~~~DATE
11. FUEL COMPONENT
GASOLINE VAPOR RECOVERY 1. vapor recovery installation at INsALLATON 01/94 PEBA
tbrmials and tank trucks cOMPLButD- technica assistanco: vapor recovery CIOR 6) SIGNED CONRACT 04/93 DDF- installation: in DDF and SoM INSTALLATION 01/94 DDF (im
COMPLETD coodnao with PEMEXand SoM)
- technical assistance: vapor recovery (TOR 6) COMPLETON OF 12/94 DDFCONTRACT
ALTERNATIVE FUEL PILOT PROGRAM
- tecbnica assistance: alternative fiel program (TOR 7) SIGNED CON7hACr 04/93 CMPCCA- technical assistance: alternative fuel program (TOR 7) COMPLETION OP IV94 CMPCCA
CONTh&Cr
111. TRANSPORT POLICY AND MANAGEMENT COMPONENT
- technical assistance (TOR 8) SIONED CONTRACr 04/93 COTAM
- Transport Air Quality Strategy agreed by )Mexican Authorities ) AGREMENT BY 12/93 COTAM
- travel demand policy agreed by Mexican Authorities M MICAN 12/93 COTAM- public tansport policy agreed by Mexican Aurities AUTHORITES 12/93 COTAM- uiban freight policy agreed by Mexican Authorities 12/93 COTAM- annual transport investment progms annual COTAM- technical assistance (TOR 8) COMPLETION OF 12/94 COTAM
CONTRACr
IV. SCIENTIFIC BASE COMPONENT
TECHNICAL ASSISTANCE TO CMPCCA TO IM OVEjCIENTaFIC BASE
- technical assistance (TOR 9) SIONED CONTRACr 07/93 CMPCCA- updated emissions inventory REPORT annual CMPCCA- photochemical grid model MODEL 12/94 CMPCCA- han expoure model MODEL 1295 CMPCCA- epidemiological study REpar 12/95 Sec. Health- improved economic methodology NW PROCEDURE 12/94 CMPCCA
ADOPID- technical assistance (TOR 9) CoMPLETION OF 06/96 CMPCCA
CONTRACT
111 PgPe 4 of S
MEXIco
u~~~ ~~~~~ __ s 5Xlac CITY NMEROPOIlTAN AREA
COMIONENT AND SUIBCOMONENT TARGET TARGET AGENCY_______ I J ~~~~~~~~~DATE j_ ____
IV. SCIENTIFIC BASE COMIPONENT (con)
ESOUIPMn1 FOR SEDESOL/INE
* air izaty monitoring systne INSTrALATION 06/95 SEDESOL
- .qt0ns for short.wnosting INVTAUATON 12/95 SBDESOL
IMF MOBILE SOURCE EQLSSIONS OAM R&
installation INAILLATION 12/94 IMP
V. INSTITUTIONAL STRENGTIENING COMPONENT
CMCA TECICAL SUPORTAM
tchnica asstae: project coordinor (TOR 10) SIeN CONmTRCr 09/92 C MCCA- staff n-pace 25 sru^f 12/92 CMPCCA- tewhnil assistanco: longterm co_ultants ClR 11) SxOM ONTRACr 04/93 CMCCA
70 MAN- annal CMPCCAMONTHS/YEAR
- updated lntegeated Progrm agreed by CMPCCA AGREED PROGRAM anual CMPCCA- annua scientific base program agred by CMPCCA AGREED PROGRAM anna CMPCCA
- environmenta impact sessment proeu NEW PROCEDURES 06/94 CMPCCAADOPTED
- pepantion invaent_ for fi REFORIS an_ia CM PCCAtebnid assi : poject coordor OR 10) CMPLKION OF 06/96 CMPCCA
CONrRTCF- tnical assison: lomg4trm co_slat CrOR 11) CoMPLKIION OF 06/96 CMPCCA
CONTRACIS
ANAL E"NVMRONME§NTAL AUDIT
- tchnieal asisto: (TOR 12, sIoiE CONlRACr 07/93 NAFIN- O/P: anual report REPORT anal NAFIN
- tecnical audinc (TOR 12) jONJUON OF 12/96 NAFDiCONntACI
pf4s oS 112
[VdisI Illum ed uw DabLow 199 199 1999 DM9 TOAL
I .Tuda upisl up to 800 pi 800 SWpto 400 vp fa2,690
2. Tmam -OwnAMoouui8ub4moW vp to 470 up to 930 up to 930 up to 470 up to ;twoa) LikhtTho vpfo 2l0 up to 57 up to 570 up O 230 upto 900b) bbaslhm Tho upto 190 up to 360 up w 360 up to 190 VP to l,0
3. Tab - Third Pafr. *-NW0 up to230 up to 470 up to 470 up to 220 up to 1.40a)LIg* TMUo upto 140 up in 285 upto 285 up to 140 upi to 0b) Mdjm Tguak up fo9O uptoLas up w185 up is9O VP inSSO
4. Thick.- Comeruion: Sub4MS up to 2,85 up to 5,700 up to02,850 vp to 11,400a) Ligk T.uck up to 2A25 up to 4,SOO up o 2,250 up to 9,000b) MdiuaTzut up to 600 uptol,200 uto 600 p fap 2,400
S. bflbmua up to 240 up to 240 up to 240 up to 130 apt. 85
PAge 1of 3113
MEXICO
TRANSPORT A1t QUM=ll MNAGEMEN PROJECT FOR TBE
MEXICO Clll M NZWOPOIfIAN AREA
Impact Indicators - Emissions Reductions from the
Proposed ProJect and Additional Govement Measures
1. Table 1 shows the 1995 emissions levels projected for the MCMA if no actions had been takensince 1989. Motor-vehicle related emissions would have increased from 1.32 million toxicity-weightedtons in 1989 to 1.84 million in 1995, and (in the absence of efforts to control them) would have condinuedto increase. The various measures to be undertaken under the proposed project, along with additionalGovernment measures already undertaken or to be undertaken would more than offset this growth. Asdetailed in Table 2, the total estimated 1995 emissions reductions from those project sub-components forwhich the emissions impacts are quantifiable are estimated at 0.44 million toxicity-weighted tons, or aboutAA'o of the total vehicle-related emissions in the absence of control. Addit-anal Government measureshaving quantifiable emissions impacts are estimated to result in a further reduction of 0.74 milliontoxicity-weighted tons, or about 40% of the total that would have occurred in the absence of control, fora total emissions reductions of 1.19 million toxicity-weighted tons (64%). The estimated emissionsreductions due to the proposed project and the additional Government measures were calculated basedon the results of the Sector Study.
2. Table 3 shows estimated emissions reductions in un-weighted tons by pollutant by measure. TheGovernment program, as a whole, is estimated to reduce the following pollutants: NOx (43,000tons/year), exhaustive VOC (204,C00 tons/year), evaporative VOC (119,000 tons/year), CO (3,706,000tons/year), SOx (32,000 tons/year), PMIO (10,000 tons/year) and lead (1,200 tons/year). The Bankproject would contribute to this program by achieving the following emissions reductions: NOx (9,000tons/year, 21% of the program total NOx reduction), exhaustive VOC (86,000 tons/year, 42%),evaporative VOC (81,000 tons/year, 68%), CO (1,378,000 tons/year, 37%), SOx (2,000 tons/year, 7%),PM1 (7,000 tons/year, 65%) and lead (324 tons/year, 2S%). These emissions reduction estimates wouldbe used as impact indicators under the proposed project.
3. Considering the substantial technical and institutional risks involved in the proposed project andthe additional Government measures, the emissions reductions estimated in Table 2 should be consideredas the 'high case" estimation. In reality the emissions reductions achieved by the project and theadditional Government measures may be lower than this estimate. On the other hand, significantunquantifiable benefits from other projects and additional Government measures have been omitted fromthe estimates. Improving the emissions inventory and proposed emissions projection capabilities will bea major focus of the scientific base component, so that better projections of air quality and emissionsshould be possible in the future as a result of the proposed project.
Table I. Motor-Vehide Related Eniusions Without Bank Projectand Additional Government Measure
1989 199S
Motor-vehicle Related Emissions | 1,323,478 1,843,332
ANNEX-10Page 2 of 3
114
Tabb I Estimated Emsbason Reductions from the BDak Project and Additional Government Measures for 1995
Of which Bank ProjectGovernment Program Contribution
MEASURES Totul % share of Total % sha&. ofEm. Red Total Em. Red Total(tons/yr)* Em. Ped. (toons/yr)r Em. Red.
Measres Supported by theBank Project
Minibus '92 standards 91,931 7.7 9,196 0.1Gas Truck '93 standards 86,447 7.3 0.0Contral I/M high-use vehicle 153,939 13.0 153,939 100.0Decent. T/M pass. cars 64,132 7.7 64,132 lOC 3Ta7d replacement ('93 stds) 62,397 5.2 27,391 44.0Gas truck LPO refrofit 93,791 7.9 93,791 100.0Gas truck CNG retrofit 82,621 6.9 25,545 30.9Replace gasoline trucks 77,533 6.5 25,598 33.0Minibus CNG retrofit 57,468 4.8 0.0SoM bus r"engine 23,937 2.0 0.0Gasoline vapor recovery 44,840 3.8 44,840 100.0
Sub-Total 839,036 70.6 444,432 53.0
Other Parts of the GovernmentProgram
Pass. car Tier 1 stds. (Incr.) 14,204 1.2R100 re-engine (CA '88 stds.) 9,719 0.8Pass. car '93 stds. 111,917 9.4Diesel Especial 10,006 0.8Lower Nova RVP to 7.5 11,024 0.9Nova Sin (old pass. cars only) 49,952 4.25% MOhE in Nova (incr.) 20,469 1.7Shut down refinery 52,108 4.4Lower Magna Sin RVP to 7.5 12,001 1.0Road paving (100 km) 7,552 0.6Pass. car '91 stds. 44,395 3.70.1% sulfur diesel (mer.) 6,412 0.5
Sub-Total 349,759 29.4
TOTAL 1,188,795 100.0
Source: Mexico-Transport Air Quality Management in the Mexico City Metropolitan Area,World Bank Sector Study, March 9, 1992.
* Emissions reductions expresed in toxicity-weighted tons.
115 Page 3 of 3
Iabl 3. Estimated Emissions Reductions by Pollutant for 1995
P Emissions Reductions (un-weighted tons/yr)MEASURES OF THe GORMENT POGRAM NOx Exh VOC Evap. VOC CO SON PM1O Lead
1. Measures Supported by theBank Project
Minibus '92 standards 4,612 20,774 2,070 431,156 645 114 126Gas. truck '93 standards 3,903 17,211 4,631 358,879 688 98 156Central I/M high-use vehicle 0 38,715 28,885 505,589 0 5,232 0Decent. VM pass. cars 0 13,565 17,124 149,862 0 1,260 0Taxi replacement ('93 standards) 3,783 11,973 748 229,028 748 87 133Gas truck LPG retrofit 4,600 16,467 6,430 374,490 1,283 99 164Gas truck CNG retrofit 3,406 16,823 5,545 318,757 1,092 84 140Replace gasoline trucks 3,501 15,436 4,153 321,873 617 88 140Minibus CNG retrofit 2,654 13,110 2,325 248,400 681 66 73SoM bus re-engine 3,909 2,092 0 4,886 98 637 0Gasoline vapor recovery 24,911
Sub-Total 30,368 166,166 96,822 2,942,920 5,852 7,765 932% Share of Total 70.0% 81.4% 81.1% 79.4% 18.1% 75.6% 75.6%
11. Of which Bank ProjectContribution
Minibus '92 standards 461 2,077 207 43,165 65 11 13Gas. truck '93 standardsCentral /M high-use vehicle 0 38,715 28,885 505,589 0 5,232 0Decent. IIM pass. cars 0 13,565 17,124 149,862 0 1,260 0Taxi replacement ('93 standards) 1,661 5,256 329 100,539 329 38 58Gas truck LPG retrofit 4,600 16,467 6,430 374,490 1,283 99 164Gas truck CNG retrofit 1,053 5,202 1,715 98,550 338 26 43Replace gasoline trueks 1,157 5,093 1,382 106,080 202 28 46Minibus CNG retrofitSoM bus re-engineGasoline vapor recovery 24,911
Sub-Total 8,932 86,375 80,983 1,378,275 2,217 6,694 324% Share of Sub-Toal I 29.4% 52.0% 83.6% 46.8% 37.9% 86.2% 34.8%
111. Other Parts of the GovernmentProgram
Pass. car Tier 1 stds. (mer.) 2,228 542 1,385 6,623 0 0 0R 100 re-engine (CA'90 sds.) 1,405 1,198 0 2,794 60 332 0Pass. car '93 stds. 5,479 19,990 9,453 360,056 1,054 397 193Diese Especial 0 0 0 0 6,800 200 05% MTBE in Nova (iner.) 0 7,643 0 167,798 0 0 0Shut down refinery 3,233 0 6,402 52,645 14,735 1,154 0Pass. car '91 standards 440 8,533 5,316 174,048 508 223 1080.1% sulfur diesel (icr.) 200 0 0 0 3,400 200 0
Sub-Total 12,985 37,906 22,556 763,964 26,557 2,506 301% Share of Total 30.0% 18.6% 18.9% 20.6% 81.9% 24.4% 24.4%
TOTAL (I and HI) 43,353 204,072 119,378 3,706,884 32,409 10,271 1,233
Poe 1 of 1116
MEXCO
TRANSPORT Allt OUALITY MANAGEMNNT PROJECT FORt THE
BMCQ CTUrY f0=PrN AME
Documents Available In the Prolect File
1. Programa Integral Contra la Contaminacion Atmosfdrica de la Zona Metropolitana de la Ciudadde Mexico, Un Compromiso Comdn, Federal District Department, Mexico City, October 1990.
2. Air Pollution Control in the Mexico City Metnlkitan Area. Results for the Short-TermProgram. Consolidated Final Reort., Federal District Department, Mexico City, June 1991.
3. Decree for the Development and Modernization of the Automotive Industry, December 11, 1989,Ministry of Commerce and Industrial Development (SECOFI).
4. Emissions Reduction Estimates for 1995 by Pollutant and by Project Sub-component.
5. Detailed Project Cost Tables.
6. Terms of Reference for Technical Assittance and Studies.
7. Programa Integral Contra la Contaminacidn Atmosferica en la Zona Metropolitana de la Ciudadde Mexico, Avances a Septiembre de 1992. Comision Metropolitana Para la Prevencidn yControl de la Contaminacion Ambiental en el Valle de Mexico.
8. Aide Memoire, relating to the Cofinancing of the Integral Program Against Air Pollution inMexico City and Metropolitan Surroundings in the United Mexican States, between the Export-lmport Bank of Japan and the Inational Bank for Reconstruction and Develomn, dated June24, 1991.
9. Loan AMC= of June 24, 1991 between the Export-Import Bank of Japan and NAM,guaranteed by the UnitedMexicanSta andMemoranduno4Understandingforlmplementatioof the PEMEX Gasoline Project between the Export-Import Bank of Japan and PMEX,acknowledged by NAEIN.
I'l1
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